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Breaking Down BordersDoing business in IndiaPadmaja AlaganandanVijay Gopal

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Today’s speakers

Padmaja AlaganandanIndia Business Leader, Human Capital

padmaja.alaganandan@mercer.com+91 9741522661

Vijay GopalSenior Associate, Human Capital India

vijay.gopal@mercer.com+91 9810049665

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Governance: The ‘people’ dimension

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Topics for discussion

Attracting and retaining talent

Setting the scene

Moving critical staff into India

5 Ensuring the success of your expansion

Setting the sceneIndia

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One of the fastest growing economies ; 9%+ growth rate for 5 years prior to current crisis

Resilient economy – 5-6% growth at the peak of the global crisis

Opening up sectors for investment

Promising consumer markets

Significant investment in infrastructure development

Today

Largest democracy; stable government.

Dominant private sector; increasing withdrawal of government from business

Robust banking sector; capital markets

World-class IT & telecom infrastructure

– A ‘connected economy’; economic efficiency & quality of governance

An enabling environment

Setting the sceneThe India story

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Setting the scenePacing ahead

Projected GDP Growth Rates for Select Upcoming Economies

0

2

4

6

8

2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50

GD

P G

row

th R

ate

(%)

Brazil China India Russia

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Setting the sceneBeyond the crisis

Indian economy coped well with the crisis; clear signs of recovery– Revised government growth projection for 09-10 at 6.9%; Q2 GDP

growth at 7.9%– GDP forecast for 2010-11 is 7.9%– 2010-11 to be a year of consolidation; launch into the high growth

mode

India’s long-term promise still holds– Growth primarily driven by the strong domestic market– Domestic savings rate at more than 35%– India projected to be the 5th largest consumer market by 2025,

worth over USD 1,500 Bn – CAGR of 7.3%*

Attracting and retaining talent

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Demographic Profile

Workforce trendsWhere we stand

Ever expanding workforce

0-14 years

15-64 years

>65 years

Population Median Age (In years)

Median age of 25.9 years, lower than many countries in the world

2nd largest urban population: 29% of the total; projected to reach 37.8% by 2025

Largest working age population worldwide by 2050

Demographics signify a predominant Gen X and Gen Y workforce

Attraction & retention of key talent therefore requires deeper understanding of workforce

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Understanding workforce expectationsYounger workforce, higher aspirations, more cash in hand

Stat

ure

& s

ucce

ss

4222

Career opportunitiesLearning opportunitiesMobility

Cashprojects

Fast track

28

Work / life balanceCareer growthSaving for home

Cash & bonusInsurance

Promotion

35

Career stabilitySaving for childrenRetirement planningDependent care

LTI PlansPension

ResponsibilityReliability

Health care benefitsRetirement planningAugmented incomeFinancial planning

Share plansPension top-up

InvestmentJob security

Age

Some goals span groups: predictable income/benefits, having meaningful roles, opportunities for growth, being treated with dignity and respect

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Managing workforce expectationsApproach to talent

With the influx of a new generation in the workforce of companies in India – HR practices need to align to the needs and aspirations of the new

employee profile – Leadership development practices must evolve to support the

relatively inexperienced ‘middle managers’ being fast tracked to sustain growth

Attraction and retention of talent will continue to be the single biggest challenge with respect to operating in India

In a crowded talent market, developing and communicating a unique employer value proposition will be a difficult task

Aggressive year-on-year salary increases will put pressure on overall cost management

Lack of talent in high-growth sectors and specialized roles could mean either higher investments in T&D or sourcing expatriate talent

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Broad areas of talent management that need to be addressed

Source: Mercer India Monitor, Nov 2009

Attracting & retaining

employees

Focus on immediate manager practices and team

cohesiveness

Learning & development

Compensation & benefits

Career opportunities

Work environment Work profile

Focus on position evaluation and compensation structure

Focus on leadership programs, competency framework design

& assessment

Focus on career architecture and PMS process design

Focus on organization structure and role clarity

GovernanceThe ‘people’ dimension

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Dimensions to governance

Deeper understanding of regulatory environment (labor laws & local legislation) particularly addressing restrictive practices around hiring and firing of blue-collar workforce

Compliance with minimum wage and statutory employee benefits requirements

Compliance with disclosure norms around executive pay and benefits liabilities as per International Financial Accounting Standards

Managing increasing scrutiny on the performance of company board of directors

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Statutory retirement benefits in India

0Up to 15% of basic salary

Defined benefit or defined contribution

No fixed formulaNoSupplementary

Superannuation

0Up to 4.81% of basic salary

Defined benefit15 days per year of serviceINR 1,000,000 lump sum

Maximum

YesGratuity

12%12% of basic salaryDefined contributionYesProvident Fund

Employee contribution

Employer contributionPlan typeMandatoryPlan

Statutory retirement plans are often inadequate to provide sufficient retirement income as contributions are based on basic salary which is usually less than 60% of total compensation

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Schemes under the Employee Provident Fund Act at a glance (for an employee who is a member of the EPS)

Firms with + 20 employees

Employer: 0.5%Employees: noneGovernment: none

MandatoryEmployees Deposit LinkedInsurance Scheme (EDLI)

Firms with + 20 employees

Employer: 8.33%Employee: none

Government: 1.16%MandatoryEmployees Pension Scheme

(EPS)

Firms with + 20 employees

Employer: 1.67-3.67%Employee:10-12%Government: none

MandatoryEmployees Provident Fund (EPF)

CoverageFinancingProgram typeScheme name

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Driving pay governance through increasing board effectiveness

Remunerationcommittee

Outsideadvisors

Internalresources

Executives

Board of directors

Delegates authority to the committee

Monitors executive pay from a shareholder perspective

Approves pay philosophy, programs, and actions

Ensures good processes Executive sessions Transparency

Provides strategic and cultural context

Provides market trends and financial analyses

Ensures informed decisions based on objective advice, notjust data

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Framework for pay governance and other elements

Holistic approach to executive pay design and governance

Performance measurement framework tailored to the company strategy and drivers of value

Performance targets, set to create an explicit link between pay and performance

Pay outcomes, reasonable given relative performance

Disclosure requirements

Regulatory rules

Sarbanes-Oxley

Accounting and tax requirements

Director compensation; Compensation Committee charters and practices

Shareholder demands and influence

Transparency and disclosure

Role of the Committee’s consultant

Pay and benefits, set relative to competitive and internal considerations

Pay design, aligned with business strategy and value drivers

Employment and severance arrangements

Other elements of governance– Board member selection, and effectiveness assessment– Succession planning

Moving critical staff to IndiaEmployee mobility

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International assignment issues in IndiaEmployer perspective

Talent readiness: Lack of skilled and readily employable talent in specialized roles requires companies to source expatriate talent

Diminishing labor cost arbitrage in high-growth sectors

Unavailability of reliable market intelligence and benchmarking data for tier 2 and tier 3 cities

Managing employee mobility costs e.g. housing, hardship allowance and travel

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International assignment issues in IndiaEmployee perspective

Safety

Cost of living

Inability to obtain certain goods

Tax issues

Work visas

Quality of living

SARS/Bird Flu/Pandemics

Hardship

Food

Language barriers

Health concerns

Medical care

Remote location

Benefits

Pollution

Internet access

Logistics

Schooling in rural areas

Housing costs and availability

Cultural differences

Difficult living conditions

Ensuring the success of your expansion M&A in India

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Transactions in IndiaHow M&A deals are done

Regulated process– National-level regulatory agencies and processes, e.g.: Ministry of Commerce Foreign Investment Promotion Board Securities and Exchange board of India

– Industry specific laws (e.g. BFSI sector highly regulated by watchdogs)

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Transactions in IndiaHow M&A deals are done cont’d

Widely varying HR environment– Target companies differ in maturity of HR processes– Data availability and labor compliance are potential issues– Prevalence of informal HR ‘practices’ along with formal HR policies– Minimum wage requirements for blue collar; governed by state

regulations

Typical HR issues– Difference of compensation structures from other geographies– Mandatory Provident Fund (DC) and Gratuity (DB) requirements– Relatively high resource mobility and employee attrition

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Challenging deal issues at each phaseTypical issues during transactions in India

Deal structure Leadership retention programs Indemnity considerations Transition of critical HR

servicesEnsuring continuation of

insurance covers on Day-1 Interpreting “No less

favorable” clauses

Doing the dealEmployee retention &

engagementHarmonizing compensation

and benefit programs Integrating grades and titlesOrganization design and

structure Talent managementCulture and communicationHarmonizing performance

management systems

Statutory compliance Compensation levels

and structureCollective bargaining

agreementsUnderfunding of DB

plans, where existingSeverance agreements Long-term incentive

plans Leave liabilities

Due diligence Making the deal work

Making thedeal work

Doing the deal

Duediligence

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Transactions in IndiaCritical success factors

In our experience working with Indian companies, there are four major challenges that emerge as critical success factors in M&A transactions:

1. Tackling employee liabilities, statutory compliances and union issues

2. Employee retention and the leadership challenge

3. Rising labor costs

4. Organizational culture issues

Source: Mercer PoV article: HR Challenges of M&A in India

Questions?

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Questions & answers

Additional information Where to go for help

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For more information on regional strategies Risks and opportunities

Visit our Breaking Down Borderswebsite to access articles, points of view, podcasts and more information on investing in India

www.mercer.com/breakingdownborders

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Future markets in the Breaking down Borders webcast series

When:Webcasts will begin at the following times:

Delhi – 11:30 am Bangkok – 1:00 pmShanghai, Hong Kong, Singapore – 2:00 pmSeoul, Tokyo – 3:00 pm Sydney – 4:00 pm

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Doing business in India Held

Doing business in Japan26 November

Doing business in China 2 December

Doing business in Korea 16 December

Additional markets will be added in 2011

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