‘Salary increases for pharma have been higher than overall industry’

Pharma has been one of the topmost industries when it comes to recruitment, and this year hasn’t been any different. Anandorup Ghose, Rewards Consulting Practice Leader at Aon Hewitt India, shares the outlook for the coming year in an interview with Shalini Gupta

How many pharma companies were surveyed out of the total? Were these MNCs or domestic companies?

A total of 50 companies from life sciences sector participated in the 2014-15 Aon Hewitt India Salary Increase Survey. The break up for the sub sectors is as follows:

• Pharmaceutical: 28
• Medical devices: 15
• Clinical Research Organization (CRO): 7

Out of these 50 surveyed companies, 15 are Indian and 35 are foreign multinationals.

The salary projection for pharma has been increasing over the years (from 12 last year to 12.2 this year). What do you see as a reason for this, specifically with respect to the industry?

As highlighted in Table 1, while salary increase for life sciences industry has dropped over the past few years, the same has been higher when compared to the overall industry. The salary increases for the pharma industry have been higher than that of the overall industry which is a result of the higher growth that the industry has seen when compared to the overall GDP growth rate.

For the period 2009-13, the GDP growth rate has been six per cent while the pharma industry has grown by 20 per cent (domestic growth at 18 per cent and exports by 26 per cent). This possibly explains why pharma has sustained the spot of being the industry with the highest salary increase. Compensation has been the major controller to attract as well as retain talent in the life sciences sector even as it continues to face talent crunch and high attrition rates (typically between 18-22 per cent). While cost optimisation is quite the buzzword, a lot of organisations were observed to focus on achieving this through increasing business efficiencies and productivity than through lower salary increases.

On one hand, 2014 was a year of several new product launches, new MNCs venturing into the country, mega-mergers and on the other hand, the industry had to deal with regulatory changes, volatile currency fluctuations, etc. Life sciences is a highly knowledge-driven sector, wherein the talent pool is limited especially in technical and niche roles (e.g positions in R&D, regulatory affairs, sales, clinical monitoring etc). Sourcing / selection for most of the functions is specific and limited to pharma/medical devices industry only. Sales and marketing, which is a major chunk of the employee population for pharma and medical devices sub sectors, require niche selling skills especially for specialty/ super specialty therapies/ large medical equipment.

What could be the reason for a greater focus on performance differentiation? Kindly detail pay hikes associated with performance differentiation across management levels? As opposed to other industries how would this be reflected in life sciences?

A significant proportion of firms today are linking performance to rewards. Performance rating linked payout is almost becoming a norm. Companies have become increasingly stringent in doling out top ratings to its employees. Employee distribution has become significantly sharper since 2007. Interestingly for life sciences, the salary increase premium received by ‘Top Raters’ is 1.7x times the average performers. The pharma industry has been more performance focused than other industries. Performance differentiation can be done through differentiated salary increases, relevant normal curves and pay mix.

On performance differentiation through salary increases, while the overall industry has looked at an index (Far exceeds vs. Met expectations rating) of 1.7 across the last three years, it’s the pharma industry that has pushed the index from 1.6 to 1.76 in the last three years. The industry is increasing its performance focus to ensure that performance is recognised and rewarded.

Table 2 shows the salary increase percentage by levels of performance for life sciences and overall industry:

What would be the hikes for lateral entrants and entry level employees? What factors would influence this? Also, how would this be different for MNCs and domestic companies?

For the entry level employees, the salary hike would be the same as the staff cadre and other lower levels of management. For 2014 actuals and 2015 projections, at an overall employee level basis, we have not observed much difference between salary increases provided by Indian and foreign multinationals.

Table 3 highlights the average salary increase percentage for life sciences sector across various levels of management:

Talent attrition has witnessed a 31 per cent jump with it being 5.9 per cent in 2014 and 4.5 per cent in 2013. Why?

With a plethora of job opportunities available in the industry, new MNCs venturing into the country, mega-mergers, etc; it gets harder to retain the key talent. Key talent (which is a small percentage of total employees) is always the one that gets targeted first. Attrition is bound to be seen in this category.

Talent crunch has been an ongoing issue in the industry for the past many years now. Even though life sciences has been the front runner when it comes to providing salary increases, the real time challenge of attrition still persists. Attrition happens the most at the junior most level and decreases as the level of management increases (attrition is the least for top/ senior management).

Table 4 highlights the average salary increase and attrition percentages for life sciences sector across various levels of management:

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