Compensation Chains Leveraging Locations with Wide Compensation Bands for Cost Savings

Zinnov LLC CONFIDENTIAL

January, 2012 | A Concept Document Zinnov

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OVERVIEW OF COMPENSATION CHAINS

The depth in compensation chains across Emerging countries provides significant opportunity to plan for the type of work being executed in these locations

• Emerging locations like china and India have a wide Range of Pay across the various experience levels and domains. For e.g., the compensation for IT professionals with 0-3 years experience level in Bangalore - India is in the range of USD 4,760 – USD 10,200

• This situation provides a unique opportunity to Global organizations – a realignment of the pyramid structures in these locations can greatly improve the contribution as well as impact of emerging locations in the location matrix

• Understanding the chain dynamics is therefore extremely crucial in planning the type of work being executed at the emerging locals

Information Technology (IT) Compensation Chains in Emerging Locations – 0 to 3 Years Experience Level

0

5000

10000

15000

20000

25000

India - Bangalore China - Beijing Philippines - Quezon Romania - Bucharest

Co

mp

ensa

tio

n (

USD

)

Max $10,200

Min $4,760

Median $6,800

Max $16,660

Min $7,616

Median $9,520

Max $8,940

Min $4,768

Median $5,960

Max $19,600

Min $11,200

Median $14,000

Variance 114%

Variance 119%

Variance 88%

Variance 75%

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ADVANTAGES OF COMPENSATION CHAIN MANAGEMENT

By having a higher depth in compensation chain, Organizations can afford a pyramid of multiple levels

Current Scenario

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Per

cen

tage

of

FTEs

• No planning w.r.t. compensation chains leading to higher costs

• Despite wide range of compensation, FTEs in an experience band working across similar types of work

Typical Pyramid Across The Location

0 – 3 Years All Comp Levels

3 – 5 Years

5 – 10 Years

More than 10 Years

Leadership

Leveraging Compensation Chains

Pyramid Realigned for Leveraging Comp. Chains

0 – 3 Years Tier III

0 – 3 Years Tier II

0 – 3 Years Tier I

Type of Work Aligned to FTEs Position in Compensation Chain to Improve Quality and Efficiency

Lower Complexity Work Higher Complexity Work

0 – 3 Years Tier I Only

0 – 3 Years Tier III

0 – 3 Years Tier II

0 – 3 Years Tier I

Wide Compensation Chains in Org Pyramid leading to Higher Costs of Operations

Multiple Sub Pyramids at the Bottom Reduce Costs

Minimal or No Change in Higher Levels

Minimal or No Change in Higher Levels

Cost reduction through higher number of FTEs at the bottom of the chain

Team composition depending on the complexity of work

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EXAMPLES

Examples of Information Technology (IT) Compensation chains in Emerging and Developed Locations Slide 1 of 2

USA Bay Area

USA - Bay Area

0

50000

100000

150000

200000

250000

300000

0 to 3 Years 3 to 7 Years 7 to 10 Years Exp > 10 Years

Co

mp

ensa

tio

n (

USD

)

Min: 55,000 Median: 67,500 Max: 95,000

Min: 62,000 Median: 85,090 Max: 128,800

Min: 73,800 Median: 107,384 Max: 172,700

Min: 86,700 Median: 145,777 Max: 260,200

India - Bangalore

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

0 to 3 Years 3 to 7 Years 7 to 10 Years Exp > 10 Years

Co

mp

ensa

tio

n (

USD

)

Min: 4,760 Median: 6,800 Max:10,200

Min: 10,500 Median: 15,000 Max: 22,500

Min: 18,900 Median: 27,000 Max: 40,500

Min: 34,905 Median: 53,700 Max: 91,290

Ukraine Kiev

India Bangalore

Ukraine - Kiev

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

0 to 3 Years 3 to 7 Years 7 to 10 Years Exp > 10 Years

Co

mp

ensa

tio

n (

USD

)

Min: 11,000 Median: 15,500 Max: 23,250

Min: 16,665 Median: 23,808 Max: 35,712

Min: 22,610 Median: 32,300 Max: 48,450

Min: 39,550 Median: 56,500 Max: 84,750

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EXAMPLES

Examples of Information Technology (IT) Compensation chains in Emerging and Developed Locations Slide 2 of 2

China Dalian

UK London

China - Dalian

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

0 to 3 Years 3 to 7 Years 7 to 10 Years Exp > 10 Years

Min: 6,702 Median: 8,377 Max: 14,660

Min: 13,076 Median: 18,680 Max: 28,954

Min: 21,837 Median: 31,196 Max: 46,795

Min: 35,649 Median: 59,415 Max: 95,064

Co

mp

ensa

tio

n (

USD

)

Malaysia - Penang

Co

mp

ensa

tio

n (

USD

)

UK - London

Co

mp

ensa

tio

n (

USD

)

0

50000

100000

150000

200000

250000

0 to 3 Years 3 to 7 Years 7 to 10 Years Exp > 10 Years

Min: 37,290 Median: 46,613 Max: 65,258

Min: 46,503 Median: 63,703 Max: 89,184

Min: 65,547 Median: 93,639 Max: 131,095

Min: 80,677 Median: 128,059 Max: 217,700

0

20000

40000

60000

80000

100000

120000

140000

0 to 3 Years 3 to 7 Years 7 to 10 Years Exp > 10 Years

Min: 8,190 Median: 11,700 Max: 32,600

Min: 14,301 Median: 20,430 Max: 67,300

Min: 22,365 Median: 31,950 Max: 93,150

Min: 41,580 Median: 59,400 Max: 120,400

Malaysia Penang

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KEY CHALLENGES AND SUGGESTED APPROACH

A careful portfolio evaluation and deeper understanding of the location is critical for leveraging the location optimally

Key Challenges Suggested Approach

Having a higher depth in compensation chains in a country does not necessarily provide an advantage

Locations in such countries will require careful planning and focused execution

Any missteps in work allocation can result in a situation where wrong tier talent is picked based on cost advantage considerations, without accounting for the impact on work quality and operational efficiency

In addition, the misalignment of resources to the type of work can lead to lower employee engagement and higher turnover situations

While long compensation chain countries offer unique and scalable advantages, there is also a tax on planning. A careful portfolio understanding and deeper understanding of the location is therefore a must for leveraging the location optimally

Average Salary Trends should not be considered alone for deciding on the type of work suitable for a location

The key is in understanding the variability and taking advantage of the same

Identifying Locations with Deep Compensation Chains

Ensuring Alignment of Team composition and Type of Work

Meeting Quality of Work and Operational Targets

Managing and Maintaining Employee Engagement Levels

Portfolio Evaluation to Ensure Alignment of Work with Talent Quality and Availability at a Location

Focusing on Compensation Ranges rather than Averages

Ongoing Assessment of Pyramids and Maintaining KPIs

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