Increasing salaries may not be the key to retaining talent and India’s e-commerce players are learning it the hard way.
The country’s retail sector hiked salaries by 11.3% in 2016-17, second only to the 11.7% in the life sciences/pharmaceuticals and health care sector. Within retail, e-commerce gave out an outsized 12.5% in average, according to the KPMG Annual Compensation Trends Survey. The overall average hike in India was 10.3%, the survey of 263 companies across 19 sectors showed.
The top two reasons for companies to increase their salary budgets were an anticipated improvement in the company’s performance (56.3%) and to reward and retain high-potential (HiPo) employees (48.3%), the report said.
However, the results seem to contradict the logic: Among all industries, retail displayed the highest voluntary attrition rate of 19.4%, well above the average of 13.4%. Such churn is typical of the retail industry owing to its seasonal nature. However, the turnover can be an operational nightmare, dampening productivity.
The churn was even more prevalent in e-commerce, which saw the highest voluntary attrition rate of 20.4%.
As India faces a talent crunch—most of its 5,500 B-schools and engineering colleges produce “un-employable” graduates—attractive pay packages might lure the best talent but can’t retain them.
“With the new generation of employees looking for greater control, involvement in key decisions, and a culture of feedback and regular conversations, organisations realise they need to re-think the way they nurture and manage talent and performance,” Vishalli Dongrie, partner and head at people and change advisory services, KPMG India, said.
Two of the biggest homegrown players are proof of this mismatch: Flipkart and Snapdeal both have come under the scanner in recent months for their high payouts. From April 2015 to March 2016, the former dished out over Rs10 crore ($1.5 million) each to six of its top-level employees and over a crore ($153,000) each to 101 others—the figures included liquidated ESOPS. Snapdeal hiked “salaries, wages and bonuses” by 210% even amidst big losses.
Yet, both have seen an exodus of senior executives.
Even those in the lower ranks don’t settle: An average of over 30% of mid-level tech startup and e-commerce employees quit every year, the Mint newspaper reported.
Experts say a lack of job security could be what sends employees packing.
“Fear of consolidation of businesses add to further churn,” according to Ashwini D, managing partner at recruiter Stanton Chase in Bengaluru. In other words, employees skirt uncertainty by leaving before they are fired and then look for more stable opportunities.
Their fears aren’t unfounded, though: Over the last year, Snapdeal has fired hundreds of employees. Even though Flipkart denied reports of layoffs, the company said under-performers are “encouraged to seek opportunities outside the company.” Last year, it froze hiring and deferred employment of fresh graduates and, in some cases, withdrew offers.
Flipkart and Snapdeal’s recent moves to shed flab are indicative of the nascent e-commerce sector’s struggle to rationalize its salary offerings. Amid these uncertainties, can employees really be blamed for hopping around?