Feature

Why mid-managers are few and expensive

Faiz Askari on the rising salaries of middle management talent in IT companies.

For a manpower intensive industry like information technology, the greatest asset that India possesses is its talent pool of educated professionals. Multinational organisations continue to invest in India due to this asset, which is also available here much cheaper. Of late, industry observers have been worried about the rising salaries of Indian IT professionals, in particular the mid-management level, which will lead to loss of India’s competitive advantage.

A recent research focussing on the HR scenario in India, has revealed that India had the highest average salary increase at 13.9 percent in the region, in 2005. This trend is expected to continue with only 2.6 percent of employers planning salary freeze next year. India’s offshoring sector, the world’s largest and fastest growing, is dominated by IT services, which play a major role in the country’s overall economic growth. By 2007–08, the workforce will consist of about 1,450,000 to 1,550,000 people, and the industry will account for 7 percent of India’s GDP.

There is a very high demand for mid-level managers in India. Evidence of this is the fact that approximately 1,200 mid-level managerial positions were advertised in just one month.

Though all industries are impacted, the problem is huge in the BPO and IT sectors, mainly because of the numbers needed. Some BPO companies have reacted to the situation wrongly by promoting “undeserving candidates” to higher levels. They fear losing people if they do not do so. This may serve as a short-term goal, but in the long run, is bound to impact the organisation.

Retaining mid-managers

The continuous effort to retain their middle managers at any cost is a cause for worry in the industry. Ashish Sinha, COO, RocSearch reveals why it is difficult to retain mid-management talent. “I am a firm believer in the fact that the most important work in any company is under the responsibility of the middle management. They are extremely important for a company’s day to day work. However, on account of growing opportunities in the market, it is getting tougher for the HR department to retain this particular category.” He points out that apart from remuneration and challenging opportunities, mid-management talent seek recognition, respect and decision-making power from their senior management.

In other words, the middle hierarchy is considered to be the most sensitive. They expect returns from the top management of the company as they themselves have put in a lot of effort into the organisation.

The frenzied growth of business in many IT companies has led to large-scale recruitment of individual contributors. New business acquisition is at a faster pace compared to the ability of organisations to groom competent managers, hence the increase in hiring for middle managers.

Major factors affecting the middle level manager’s performance are:

• Growth opportunities
• Dissatisfaction with work
• Less recognition
• Power to make decisions
• Recruiting only experienced people for defined roles
• Organisation restructuring to flatter pyramids

"Lack of an employee development programme or a succession plan in the organisation creates the need to hire middle managers from outside" - Amit Azad Head of Operations and Finance Finesse PR and HR Consultancy

Amit Azad, Head of Operations and Finance, Finesse PR and HR Consultancy, believes that retaining mid-managers is a challenge these days. “This is because there is a lack of understanding in the criteria of evaluating the professional. With evaluation I mean to say there should be a transparent way of upgrading the responsibilities. Basically many times employees are not aware of the appraisal criteria, and when they get unsatisfactory results they get frustrated. This frustration leads to a change of job kind of situation.”

According to Azad, in such a scenario, organisations have no option but to look for a replacement. This replacement may or may not be at that salary level as it was earlier. This leads to adverse affect on other colleagues as they start comparing themselves with new entrants who are working with them for higher salaries.

Rising salaries

"Mid-level management salaries are going through the roof and it is affecting the performance of many MNCs in the country" - Nitin Khanna Vice President & Country Head EBS Worldwide

The crisis for mid-management talent is found across all sectors, including infrastructure, retail and BFSI. In fact, acquisition of talent in the 8-10 years’ experience category has been named the single biggest challenge for these sectors in the next two years. According to a recent survey, the top four IT companies paid salaries and wages of Rs 16,456 crore in 2005-06, at an average rate of Rs 9.70 lakh per employee per year, compared to an average wage bill of Rs 12,374 crore at an average rate of Rs 10.24 lakh per year in 2004-05.

Nitin Khanna, Vice President & Country Head, EBS Worldwide states, “Mid-level management salaries are going through the roof and it is affecting performance of many MNCs in the country. The group which typically forms 30 percent of the cost to any organisation is sometimes responsible for as high as 45 percent of the cost. Consequently, some Banga-lore based companies have already shut their shops and others have cut down drastically on their hiring.”

Khanna adds that the solution lies in promoting people from within the company and hiring only when it is an absolute necessity. Some companies are tackling this issue by creating a talent pool which usually consists of top performers and giving them out-of-turn promotions to fill middle level positions.

From the organisation’s perspective, the problems are the following:

• Recruiting a new person for more salary leads to problems in existing teams
• Lack of transparent methodology in performance evaluation
• Lack of time for recruiting people compared to the expansion plans

Commenting on the overall manpower scenario, Sangeeta Gupta Vice President, Nasscom, states, “Cost of operations in our country is only going up, primarily because of rising salary levels of employees. Though we boast of a large pool of manpower available, only a handful is employable and is wooed by many.”

With an increasing number of MNCs turning their attention to countries such as China and India, it comes as no surprise that salary increases in these markets are among the highest in the region. It has been realised in the last few years that middle managers are less in number compared to entry level people. “As a solution to this problem, many companies are strengthening their existing entry level employees. Through such initiatives lower level employees get an opportunity to grow in the same company and get promoted within the organisation,” adds Sinha. This enables employee retention and junior staffers get opportunities to plan their career progression in the company.

Industry watchers reveal year-on-year increases in middle management salaries have seen a jump from 20 percent to 50 percent last year on an average across industries, especially in retail, ITeS, media and telecommunications. “An ever-growing base of employees in these industries has created an imbalance in the organisational pyramid, with a rapidly thinning segment of middle managers that is just not keeping pace with this explosive growth,” explains Gupta.

The cost of hiring mid-managers is on an increase in the IT industry. G Unnikrishnan, Director HR, Trianz, states, “Organisations that follow the internal growth model focus on recruiting at the entry level and then grooming employees till they can fill higher job positions. This has been a successful approach for many companies in India in the past. However, the long-term success of this model depends on the attrition rate. Attrition rises during an economic boom. The current stabilisation of the Indian economy in growth mode has provided options for many talented individuals to explore new opportunities. Organisations are now seeing some of their best contributors leaving for more fulfilling opportunities elsewhere after some years in the firm.” He points out that to maintain their growth momentum, organisations need managerial talent, and are thus forced to augment the managerial cadre through recruitment.

Recruitment pattern

Most organisations want a mix of both young and experienced talent. While the first are available aplenty, people with good experience come at a premium. Says Unnikrishnan, “Young organisations follow the route of recruiting only experienced resources for defined roles. Since a young firm will have a paucity of middle level managers, the organisation is then forced to hire them.”

There are many companies which have not defined employee development programmes. “This creates the need to hire middle level managers from outside since they have no clear career growth plan or a succession plan internally,” says Azad.

Furthermore, new companies that have set up development centres in India need managers and they are recruited from the existing pool available in other organisations. This has led to a demand for middle level managers in the new organisations as well as those that have lost their middle cadre.

ec@expresscomputeronline.com