Indian firms turn to deferred bonuses to retain top talent as attrition surges

Indian companies are introducing deferred incentives into the salary structure of key senior talent across several industries to retain them for 2-3 years at least amid high attrition in a buzzing job market. 
 
"We are seeing a fair amount of deferred incentives, which include stock options, Restricted Stock Units as well as deferred cash, being offered to retain talent for 2-3 years," said Roopank Chaudhary, partner in Aon's human capital business.

Firms are finding it hard to have an employee stay on for more than a year given the market sentiment and resultant churn as overall attrition is at a decade-high of 20%, he added. "A sizeable lock-in can help retain people at the senior levels. That's where long-term incentives come into play," Chaudhary stated.

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"Companies are thinking about good retention policies. One way is through short-term policies like an annual retention bonus where 8-10 per cent is paid upfront to ensure the person is no longer an attrition risk. The second is through long-term incentives such as deferred incentives which could be as high as 20 per cent with, say, 8 per cent in the first year, another 8 per cent in the next year and the rest in the third year," said PS Viswanath, MD &CEO, Randstad India.

Umesh Ramakrishnan, senior partner and co-CEO of global executive search firm Kingsley Gate Partners, said forward-thinking CEOs and companies in India are proactively offering as high as 25% bump up in salaries on a retention basis as they expect a brain drain of executives when pent-up demand begins catching up at some point. 

A deferred incentive programme is one type of long-term incentive (LTI) where the company pays someone on its payrolls a certain percentage of their salary as an incentive over 1-2-3 years. Many companies offer a bonus plus long-term incentives like stock plans. 

Some companies just defer a part of the cash bonus over a few years to retain people. Employee Stock Ownership Plan (ESOPs) and Employee Stock Purchase Plan (ESPPs) are also long-term incentives.  

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"ESOPs are already prevalent in listed companies across industries, but they are limited to the management or leadership team. So, that's a small number. But ESPPs are being introduced across levels. Around 25-30 per cent of the MNCs operating in India have this option," said Viswanath. 

Chaudhary said the trend is visible across industries, especially in technology firms, financial institutions and professional services. Tech roles are the most impacted but other roles at senior levels also have a significant play in LTI.  

Meanwhile, the IPO frenzy among Indian startups has also fueled this trend, the experts said. With record levels of PE/VC funding flowing into Indian startups and several of them turning into unicorns, the new-age firms have been hiring aggressively to grow their ventures. 

"A lot of talent is moving to startups. To stop that from happening you need to have a wealth creation opportunity being given to senior people…When companies ask us how to retain talent, the answer is to have a longer-term hook, not a one-year plan," said Chaudhary.