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Risks and Real Costs of Employee Benefits The Third Dimension of CTC Management

May 24, 2012 Dr. Paritosh C. Basu

Discussion Flow
 Actuarial assumptions
CFO’s perspective of the ‘Third Dimension’

 Issues in choosing Approach for CTC Management CFO’s perspective of value creation and sustainability  CTC Management vs. Enterprise Risk Management

Employee Benefit Management is a journey – Let us begin


Actuarial Assumptions - CFO’s Perspective of the Third Dimension
1. Amounts involved - Large

2. Time scale for measurement is - Long

3. Estimation process - Complex 4. Allocation of charge over periods - Complicated 5. Defined benefit schemes - The most intricate ones 6. Variations in demographic and financial assumptions Specific to industry, country, business group and entity 7. Present and forward path - Shrouded with uncertainties of varying degrees 8. Decision tools and touch points - Sensitive assumptions and judgments 9. Standards - Still evolving (IAS 19: 1998 – 5 Changes, AS 15 – 1995 and 2005)
Entity Division

Cash Flow - How much? Time - Now or Future? Value - Creation for Business?

Issues in Choosing Approach for CTC Management
 Allocation Now or later -- Option vs. Regulation  Position vs. Industry Peers Whether need is there to Mark to Market  How much to share

Out of value created -- %age of EBIDTA before EB
 Self infliction Provoked measures -- reduce vs. Ring fencing of talent

 Policies touch point
Blocking of Peer-cutters and Poachers

Validate EB, with Value Creation and Sustainability Management Polices

Issues in Choosing Approach for CTC Management
 Business Combination Policies and procedures -- Alignment vs. Variety  Need in higher growth trajectory Effectiveness -- Variable Pay and ESOP  Sudden saturation of manpower Push higher portion to back end  Strategic plan and risk management Retrospective change -- Large present impact  Influence of client On-sight jobs in people oriented services

Is it CFO’s annual ritual or collaborative decision of Leadership Team?

CTC Management vs. Enterprise Risk Management
1. Change management for each sensitive policy variation 2. HR Sensitivity vs. organisational imperatives 3. CEO’s committed future EBIDTA vs. today’s committed CTC with V. Pay 4. Aggressive stand taken by competitors 5. Net Take-home pay -- Case in point earlier Fringe Benefit Tax 6. Effectiveness of ESOP scheme in midst of market volatility 7. Communication management and employee engagement

8. Bilateral Scalability , Brand image and ring fencing of talent
9. Justifying comparability of assumptions vs. competitors, group companies Risk management - A way of life for each employee, the ‘Micro Owner’

Further Thoughts


Thank You