Compensation & Benefits Study 2009

Exclusively for Software Product development companies across India

February, 2009

This report is solely for the use of Zinnov client and Zinnov personnel.
No part of it may be circulated, quoted, or reproduced for distribution
outside the client organization without prior written approval from Zinnov
AGENDA

Compensation and Benefits Study 2009

• Executive Summary
• Compensation Analysis

• Variable Pay Analysis

• Managing Uncertainties

2
Zinnov Management Consulting Pvt Ltd (Confidential)
AGENDA

Compensation and Benefits Study 2009

• Executive Summary
• Compensation Analysis

• Variable Pay Analysis

• Managing Uncertainties

3
Zinnov Management Consulting Pvt Ltd (Confidential)
The economic condition has had a very high impact on the compensation
budgets of R&D organizations (1/2)

2009 has seen a plateauing of salary with over 27% of the participating organizations
announcing a salary freeze across the board. This percentage is expected to increase in
the coming months

The average increment for 2009 as announced by few of the participating
organizations ranges from 5% to 12%

15% of the organizations have postponed their appraisal cycle and will decide based
on the economic scenario
Compensation trends
12% of the participating organization announced salary cuts either to the senior
across R&D Companies management team or across all levels. The salary cuts ranged from 5% to 10% across
the organizations

Organizations are shifting focus to the variable pay component to reward and retain
top performers

Few organizations have restructured their compensation linking employee rewards to
individual and organizational results

More emphasis is on short term incentive schemes directly linking individual
performance to the organizational performance

There is a declineForin the
moretrendinformation,
of providing stock email
option schemes and companies are
[email protected]
opting for profit sharing incentives

Bangalore continues to be the highest in the pay scale followed by Pune and Chennai

Bangalore is 5% higher than Pune and 8% higher than Chennai in its average salary
Compensation trends for the engineering and quality positions
across cities
There is no differential in the average salaries of Engineering Directors across
Bangalore, Pune and Chennai due to the criticality of the role

However, companies do differentiate in salaries across the junior and middle level
across the 3 cities
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The economic condition has had a very high impact on the compensation
budgets of R&D organizations (2/2)

Senior positions such as Engineering Manager and Director Engineering continues to

be on the high with an average increase of 8% when compared to 2007 as companies
continue to reward high quality talent

The average salary of Technical Architects has dipped by 4% when compared to
2007
Compensation trends
The average salary for the junior positions in the engineering function have stabilized
across functions and had just a marginal 1% increase

Average Salary increase for the QA function is 6%

For the product manager position average salary has gone up by almost 7%when
compared to 2007

Technical Support continues to witness a decline in its average salary especially at
the junior levels. The primary reason for the decrease in average salaries can be
attributed to the large pool of talent available from the services industry.

Attrition rates across levels were found to be the lowest in 2008 when compared to
the previous 2 years

Attrition rates across levels at R&D centers in India to be at an all time low in 2009
For more

Bangalore continues to reflectinformation, email
high attrition when compared to Pune and Chennai

The average attrition rate across participating organizations is at 5% to 8%

Q2 (April to June period [email protected]
in case of Jan to Dec financial cycle) was found to have the
Attrition Trends highest rate of attrition in 2008 when compared to the other quarters. This may be
attributed to the lull period after the performance appraisal

Attrition was much under control in most organizations by the last quarter of 2008
(October to December period) due to the recession

With regards to involuntary terminations, most organizations have taken a strong
stand on the performance of employees and hence have weed off the bottom 5% to
10% of low performers.
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R&D organizations are being challenged to balance their need to retain key
talent while responding to economic pressures

Impact of the economic turmoil on R&D Compensation budgets for about 68%
of the organizations were revised post
organizations October 2008

Companies are rewarding greater increase

50% for top performers in order to retain top
talent

42%

40% Companies have shifted focus on variable pay to

37% incentivize employees. This also provides the
organization the flexibility in handling people cost
34%
% of organizations

30%
27%
Economic Turmoil
23%
22%
20%
17%
14% More emphasis is on restructuring
11% programs post downsizing as it is critical for
the success of the organization
10%
6%

HR Leaders need to have alternative

strategies chalked out to address critical
0% business needs
Hiring freeze Layoff Salary freeze Delayed Reduce
planned Salaries
merit Ineffective communication will prove to be
Min Max increase very expensive to companies during
critical times. Provide clarity to employees
on salary freeze, changing budgets etc.

Zinnov Management Consulting Pvt Ltd (Confidential)

Organizations are being proactive in managing people cost as it constitutes
about 62% of the total operating cost

Operating Cost 2008 Distribution of People Cost-2008

People Cost Others 5%

62 % Cost
Min Max
Component

Salary 55% 75%

Bonus/
7% 25%
Benefits Variable pay
Travel Cost 12%
Employee
9% 8% 15%
Benefits

Others 3% 8%

Communication Infrastructure Bonus 15%

Cost & Facilities Cost
5% 19 %

Professional & Regulatory

Cost
5% Salary 69%

0% 15% 30% 45% 60% 75%

Note: ‘Others’ include leave accrual cost, training cost etc.; Employee benefits include lunch/ dinner, employee insurance, retirals includes provident fund, gratuity & superannuation,
reimbursement etc.
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Concern over soaring salaries at R&D centers and the current economic
down turn has put undue pressure to level off compensation

Compensation scenario across R&D Percentage of salary increase provided

organizations by organizations – based on revenue
20%

Delayed merit
increase
15% 12%
11%
Providing 10% 10% 10%
salary 10%
increase 8% 8%
Salary Freeze
42% 7%
27%

5% 5%
For more information, email [email protected]

0%
<50 51-100 101-500 501-1000 >1000

Revenue in million (USD)

Min Max

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Though R&D centers in Bangalore are affected by the economic turmoil, they
continue to be the highest in average salary followed by Pune and Chennai

Compensation across cities relative to

Bangalore Trends

Bangalore is 5% higher than Pune and 8% higher

than Chennai in its payscale when compared to 2007
100% for the engineering and quality positions
100%

Average salaries of senior positions from Pune are at
98% par with the Bangalore

However, salaries of junior positions from Pune are

Compensation relative

96% 2% lower than the Bangalore market

For more information, email
to Bangalore

In Chennai, the average salaries of Engineering

94% 95%[email protected] Manager and Technical Architects are 4% lower than
the Bangalore market

92%
However, the average salaries of Engineering

Director was at par with the Bangalore Market
92%

Average salaries of junior positions from Chennai are
90% about 3% lower than the Bangalore market

88%
Bangalore Pune Chennai

Zinnov Management Consulting Pvt Ltd (Confidential)

However, organizations still continue to face challenges due to a demand
supply gap for the Engineering and Product Management teams

Few organizations are looking at India

as a hub for emerging market
Enginee
innovation which increases the
requirement for Product Managers r-ing

More organizations are moving Product
towards full product ownership in
India and also introducing multiple
Strategy
product lines.
Senior positions such as Engineering

Large organizations are focusing to Manager and Engineering Lead
build specific competencies at the continues to be on the high
India center and be part of the global
The average salary for the junior
product roadmap. Thus increasing the positions have stabilized
need for product managers
Demand
Supply Competition
Technical
Testing Support

With more and more companies
Companies are also moving from
moving towards module/product license revenue to support
ownership model, quality and testing revenue model and hence TS is
has become a very important role in the becoming an integral function of
India centers. the organization

Another contributing factor is that
However, a larger pool of people
some organizations do not differentiate are available for this function as
between engineering and testing many are hired from the services
positions industry
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Also, attrition rates across levels have been found to be the lowest in 2008
when compared to the previous 2 years

Level wise attrition across cities over last 3 years

Trends
12%

The attrition rate across product development
organizations range between 5% to 8% and
companies are expected to have a lower attrition
10% 10% in the coming months

When compared to 2007 the product companies

across India have witnessed low attrition for the
8% 8% 8% various levels in 2008 indicating a more positive
trend
Attrition Rates

7%

6%
6% For more information,

The junior levelemail
attrition that had gone up to 7%
in 2007 dropped to 5% in 2008.Similarly, middle
5% 5%
[email protected]
level attrition that was 6% in 2007 also came
down to 4% in 2008
4% 4% 4%

Also 2008 witnessed the lowest levels of attrition
3% when compared to the last 2 years

2% 2% 2%
QA (testing) function was found to be the highest

in attrition across various cities

Attrition at the senior level was found to be

0% relatively low
2005 2006 2007 2008

Junior Middle Senior

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AGENDA

Compensation and Benefits Study 2009

• Executive Summary
• Compensation Analysis

• Variable Pay Analysis

• Stock Option Analysis

• Managing Uncertainties

12
Zinnov Management Consulting Pvt Ltd (Confidential)
Average salaries of senior positions such as Engineering Manager and
Director of Engineering continues to be on the high

Engineering function - Average salary over 4 years

31.16
30.03
29.07
26.54
21.39
22.17
Salary (in INR lakhs)

18.85
17.3
17.46
16.21
15.3
15.14
11.7 12.45
9.76
9.1
12.1 12.7
10.81
10.66
7.34 7.65 8.42
6.31
7.35 7.68 8.64 9.07
4.88 5.44 5.53 5.97
3.65 4.35 4.44 4.23
2005 2006 2007 2008
Associate softw are engineer Softw are engineer Senior Softw are engineer
Senior softw are engineer (IC) Engineering lead Engineering lead (IC)
Engineering manager Technical architect Engineering Director

Senior positions such as Engineering Manager and Director Engineering continues to be on the high with an average increase of 8% as
companies continue to reward high quality talent

The average salary of Technical Architects has dipped by 4%. In the previous years their salaries of Technical Architects had seen a steep
hike. However in 2008, rationalization of salaries for this position has occurred.

The average salary for the junior positions in the engineering function have stabilized and had just a marginal 1% increase

The average salary for the individual contributor at the middle level has gone up by 3%.

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As more and more companies move towards module/product ownership
model , quality/testing has become a very important function

QA (Testing) - Average salary over 4 years

14.98
Salary (in INR lakhs)

13.83
12.4
11.69

9.74
9.39
8.56 9.38

6.98 7.95
5.83 5.94

3.9 4.25 4.56 5.27

2005 2006 2007 2008

QA Engineer Senior QA Engineer QA Lead QA Manager
For more information, email [email protected]

Average Salary increase for the QA function is 6%

An increase of 5% in average salary was noticed for lead and manager positions

Increase in salary due to
− Companies moving towards module/product ownership model, QA functions critical
− do not differentiate between engineering and testing positions

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As organizations have started to focus to be part of the global product
roadmap, there is a need for product managers attributing to a premium
being paid
Product Strategy (PM) - Average salary over 4 years

21.26
Salary (in INR Lakhs)

20.03
17.9
16.25

10.64
8.77 9.05
7.12

5.87 6.05 6.54 7.1

2005 2006 2007 2008

For more information,
Business Analyst
email Product manager
Senior Business Analyst
[email protected]

The average salary for the junior positions such as Business Analyst and Senior Business Analyst have stabilized and had just a marginal
2% increase compared to 2007

For the product manager position average salary has gone up by almost 7% when compared to 2007.This could be contributed to the
demand supply gap as organizations are looking at India as a hub for emerging market innovation which increases the requirement for
Product Managers

Also more organizations are moving towards full product ownership in India and also introducing multiple product lines. Large
organizations are focusing to build specific competencies at the India center and be part of the global product roadmap. Thus increasing
the need for product managers

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Additionally, as organizations are moving from license revenue to support
revenue model ,Technical Support is becoming an integral function

Technical Support Function - Average salary over 4 years

12.59
10.46 11.61
9.6
Salary (in INR lakhs)

7.94 8.5 9.1

7.27

5.63 5.12 5.09

5.25

3.32 4.01 3.93 3.75

2005 2006 2007 2008

Technical support engineer 1 Technical support engineer 2
Technical support engineer 3 Technical support manager

Technical Support continues to witness a decline in its average salary especially at the junior levels. The primary reason for the decrease
in average salaries can be attributed to the large pool of talent available from the services industry

There was a decline of 2% in average salaries for the positions of Technical Support Engineers 1 and 2 when compared to 2007

An increase of 4% in average salary was noticed for Technical Support Engineer 3 and Technical Support Manager positions

Technical Support is a fast growing aspect of Product organizations as it can be quantified and has measurable Service Level
Agreements. Companies are also moving from license revenue to support revenue model and hence Technical Support is becoming an
integral function of the organization and therefore the demand for people is also increasing
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The salary levels for the HR positions vary according to the quality of
people, responsibilities and size of the organization

HR function - Average salary over 4 years

22.08
20.76

18.26
Salary (in INR lakhs)

18.55
11.35
10.53
8.64
8.07
10.38 11.01
9.43
6.75
6.07 6.67
4.9 5.2
3.61 4.77 4.83
3.5
3.55 4.02 4.12 4.34

2005 2006 2007 2008

HR executive Recruiter Senior HR executive Recruitment manager HR manager HR Head

The average salary for the HR function at the junior level has stabilized when compared to 2007 with just a marginal increase of about 1%

There is an increase of 3% in the average salaries of Recruitment manager and HR Manager.

However , the average salary for the HR Head has increased by 4% as organizations have redefined the role of the HR Head in a product
organizations

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Average salary of Pune is almost 5% lower when compared to Bangalore

Pune vs. Bangalore – Average salary comparison

4000000 Bangalore
Pune
3500000

3000000

2500000
Salary (INR)

2000000

1500000

1000000

500000
For more information, email
0 [email protected]
Associat e Sof t ware Senior Senior Engineering Engineering Engineering Technical Engineering QA Senior QA QA Lead QA
Engineer Engineer Sof t ware Sof t ware Lead Lead (IC) M anager Archit ect Direct or Engineer Engineer M anager
Engineer Engineer
(IC)

Average salaries of senior positions such as Engineering Manager, QA Manager and Engineering Director are at par
with the Bangalore market

The average salaries of Technical Architects is 5% lower than the Bangalore market when compared to 2007

Salaries at junior positions are 2% lower than the Bangalore market

Zinnov Management Consulting Pvt Ltd (Confidential)

Average salary of Chennai is almost 8% lower when compared to Bangalore

Chennai vs. Bangalore – Average salary comparison

4000000 Bangalore
Chennai
3500000

3000000

2500000
Salary (INR)

2000000

1500000

1000000

500000

0
Associat e Sof t ware Senior Senior Engineering Engineering Engineering Technical Engineering QA Senior QA QA Lead QA
Engineer Engineer Sof t ware Sof t ware Lead Lead (IC) M anager Archit ect Direct or Engineer Engineer M anager
Engineer Engineer
(IC) For more information, email


[email protected]
Average salaries at junior positions are about 3% lower than the Bangalore market

In Chennai, most of the participating organizations do not differentiate between salaries of Individual contributors and incumbents with people
management skills

The average salaries of Engineering manager and Technical Architects are 4% lower than the Bangalore market.

Most of the participating companies from Chennai differentiate in salaries between the QA and the Engineering team. The average salary of the
QA team was 5% lower than the Bangalore market

However, the average salary of the Engineering Director was at par with the Bangalore Market

Zinnov Management Consulting Pvt Ltd (Confidential)

AGENDA

Compensation and Benefits Study 2009

• Executive Summary
• R&D Insights

• Compensation Analysis
• Variable Pay Analysis

• Managing Uncertainties

20
Zinnov Management Consulting Pvt Ltd (Confidential)
Most of the benchmarked companies provide for some form of fixed bonus
or variable pay over and above the fixed salary

Break-up of compensation components

Trends Discussion

Bonus/ variable pay opportunities are stated as a percentage of base

Variable pay salary earned for the operating period. The operating periods could be six
months/ one year. In case of six months, the base salary for each
20 % operating period is simply half of one’s annual salary

Achievement of business targets or individual performance activates

Fixed bonus plan eligibility. In case of business targets, growth in direct margins will
6% Salary result in higher bonuses based on the actual growth level achieved
74 %

In case of company performance, employees must be employed by the
organization at the end of the operating period and maintain minimum
performance levels (as determined by the organization) to be eligible for
the bonus.

The typical variable pay/ bonus amounts ranges from 0% to 25%

(excludes sales function)

Most of the benchmarked organizations provide for some form of fixed

Level wise eligibility bonus or variable pay over and above the guaranteed cash.

Variable pay can be both long term and short term. Short term includes
Levels Variable pay range individual performance and profit sharing based pay outs. These are
contingent on certain criteria defined by the company such as Company
Junior Levels (Up to 4 years) 0% to 12% performance, Individual performance, etc.

Middle levels (4 – 10 years) 0% to 18%
The long term incentives include equity pay outs such as Employee
Stock Option Schemes, Employee Purchase Plan Schemes and
Restricted Stock Units
Senior Levels (10 plus years) 0% to 25%

The fixed bonus includes start/sign-in bonus and retention bonus

Source: Zinnov Compensation & benefits study , 2008 Zinnov Management Consulting Pvt Ltd (Confidential)
Of which, Profit sharing and Individual performance bonus forms key
components of the total salary
Distribution of fixed bonus & variable pay
(as a % of total variable pay)
Total people cost
Cost
50% Minimum Maximum
Component
45% Start Bonus 6% 12%
Retention bonus 6% 16%
40%
Fixed bonus & 36% Equity payouts 5% 15%
Variable pay 35%
Profit sharing 20% 52%
26%
30% Individual bonus 10% 40%

25% Team bonus 5% 13%

25%
Salary
74 %
20%

15%
11%
10% 9% 9%
10%

5%

0%
Profit Individual Equity Start Retention Team
sharing bonus payouts bonus bonus bonus

Note: Indicates typical distribution and weighted average is considered for calculations

Zinnov Management Consulting Pvt Ltd (Confidential)

AGENDA

Compensation and Benefits Study 2009

• Executive Summary

• Compensation Analysis

• Variable Pay Analysis

• Managing Uncertainties

23
Zinnov Management Consulting Pvt Ltd (Confidential)
 R&D centers in India are caught between gloom and doom at the HQ and
cautious optimism about the India advantage

The India centers have

seen an indirect impact There is optimism about
of the current recession the positive impact of
as the Indian market has the recession on the
not been impacted to the India center because of
same extent cost arbitrage

India center in
global turmoil

Due to lack of
communication and There is a lot of haziness
presence of multiple in terms of the lay-offs,
stakeholders, the message its impact on the India
from US is sometimes centers, expected future
conflicting. This gets more demand for talent etc.
complex in matrixed
organizations

Source: Zinnov Research Zinnov Management Consulting Pvt Ltd (Confidential)

 Indian R&D centers have reacted differently to the uncertainties based on
various factors

Efficiency of India Size of operations

center’s operations in India

Contribution of
HQs market India center to the
performance global operations

Action of India Centers

Hiring frozen. Only

5-10% workforce
backfilling is being done
laid off. Mostly on
and that too only for
performance basis
critical positions.

Salary hike frozen

Source: Zinnov Research Zinnov Management Consulting Pvt Ltd (Confidential)

 The uncertainties associated with this downturn can lead to lower
productivity at the India centers if not managed effectively

Employees have to
Employees are not
regularly face the
clear if the projects
fear of being laid off.
they are working on
This results in lower
will be de-prioritized
productivity

Lower Employee
Productivity

Employees are
frustrated with cost Employees are
cuts that seems like concerned about the
inexpensive benefits financial health of the
(snacks, lunch, office parent company
parties etc)

Reduction in travel has led to

lack of visibility of the local
management which has in turn
reduced the effectiveness of
their communication with the
employees

Source: Zinnov Research Zinnov Management Consulting Pvt Ltd (Confidential)

 Hence, companies should take a holistic approach to manage uncertainties
using a structured framework to focus on people using communication as
the key tool

PEOPLE

STRUCTURE ALIGNMENT PROCESS

COMMUNICATION

Source: Zinnov Research Zinnov Management Consulting Pvt Ltd (Confidential)

 For complete report, email
[email protected]

Thank You !

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