Employee contribution to profit beats compensation

New Delhi: There might have been a double-digit salary growth in corporate India, but the fact remains that Indian employees continue to contribute to revenues at a pace which beats the rise in their pay packages. In fact, over the last five years employees of listed firms in India have contributed more than earlier to earn their salaries, reports Economic Times.

As per a SundayET analysis of listed companies, in which 348 companies disclosed their data on number of employees, net income and compensation to employees since FY04, employee contribution grew faster than compensation to employees, in the last five years. Employee contribution was calculated by dividing net revenues by the number of employees in the organization.

While compensation per employee has grown by only three percent since FY04, employee contribution to the revenues of their organization has risen by 17 percent. There has also been a decline in the employees' share of the total contribution. For instance, in FY04, the net income that an individual employee generated for the company was 41 lakh while his own compensation was only about 3.16 lakh, which meant he enjoyed an eight percent share of his contribution to the company. However, by FY09, while an individual employee generated 90 lakh as net income for the company, his salary had only risen to 5.7 lakh, bringing down his share to six percent.

For the financial year ending March 2009, the contribution to compensation ratio stood at 16, whereas, it was only 13 in FY04.

The Economic Times reports that, human resource experts see two different trends emerging. On one hand, it shows how corporate India is being able to drive better productivity amongst it employees. To get a salary of 100, directly or indirectly, an employee is expected to make its company earn revenue worth 1,300 in FY04, whereas to get a similar salary in FY09, employees have had to generate a revenue of 1,600.

As Kris Lakshmikanth, CEO of Headhunters says, the mandate has been to do more with less. "Automation has also definitely been one of the keys to enhancing productivity in many sectors and even people-intensive sectors like software are looking for ways and means to get themselves out of the game of high numbers." The other strategy that companies have used to improve productivity is to increase the variable component of salaries, which is dependent on the individual's productivity.

According to others, the data indicates that the pace of compensation growth in India is slowly coming down. "While a year on year salary growth of 15 percent to 16 percent was explained away in the early half of the decade saying that Indian salaries were low, over the long haul companies cannot afford salary growth at such a pace if they had to sustain themselves," says E Balaji, CEO of Ma Foi Management Consultants.

India-based managers in multinational firms, have especially had to face the challenge of explaining such salary growth to their overseas counterparts who are used to seeing a twp percent to three percent growth. "But salary growth in India will soon touch a single digit figure and for the managements in many companies, the slowdown perhaps came at the right time," adds Balaji.