How Bad Is Turnover Problem in India's BPO Industry?

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It's no surprise that attrition is a problem for India's outsourcing industry. I've been writing about it for more than two years now. Analysts closely follow hiring patterns at the country's outsourcing providers as one of their barometers for predicting financial performance. Some service providers are raising salaries to retain employees, as I noted late last year, which can drive up costs for outsourcing clients.


So how bad is the problem? According to a new report from the Hay Group, India's BPO industry suffers from an attrition rate of 23.5 percent, the highest of any sector in the country and more than 7 percent higher than the average attrition rate of 15.7 percent.


Hay Group faults the industry's remuneration model, which includes few short-term rewards and instead emphasizes long-term benefits such as pension funds, reports The Economic Times. Short-term incentives account for just 4 percent of total remuneration at BPO companies, says Hay Group, vs. an average of 10 percent in India's other sectors. Other contributors to the problem: long working shifts, a lack of career development and monotonous tasks.


Hiking up salaries won't solve the attrition problem, according to the report. Instead it recommends providing a better balance of short- and long-term benefits such as performance bonuses, employee stock option plans and retention bonuses; effectively communicating details of compensation plans to encourage employee buy-in; and promoting non-financial benefits such as career development, job rotation and transparent performance management systems.


Says Oscar De Mello, country head of Hay Group's Reward Information Services in India:

Contrary to belief, adjusting pay need not automatically lead to higher operating costs for BPO companies. By creatively designing their total reward package towards more short-term incentives and benefits, and linking the package to performance, companies can ensure that they get higher productivity without hefty increases in salary costs and minimize attrition costs and issues at the same time.

India's government is acutely aware of the attrition issue, which is why it has introduced several initiatives to create BPO jobs in rural areas of the country.