Hero raises wages across the board

In the middle of an economic slowdown, an across-the-board pay increase qualifies as a counter-intuitive response. But that’s exactly what Hero MotoCorp Ltd, the world’s biggest two-wheeler maker, has done, according to three people familiar with the development.

For white-collar employees, the pay has been raised as much as 30%, while workers at the Dharuhera plant have got a monthly increase of Rs. 6,500 each. The firm is drawing up a similar pay structure for workers at its Gurgaon and Haridwar plants.

The move isn’t so much counter-intuitive as reflective of the new ground reality that prevails across Haryana’s industrial estates in the Gurgaon-Manesar-Dharuhera belt. No company wants to go through what Maruti Suzuki India Ltd, the country’s biggest car maker, had to endure in the past few months.

A series of strikes at Maruti’s Manesar plant led to an estimated loss in revenue of Rs. ,500 crore for the company and took a substantial bite out of passenger car sales, especially since it took place on the eve of the festival season, traditionally a time of increased demand.

Hero’s wage increase will help ensure that there’s no disaffection among workers, reeling under the effects of spiralling inflation, as the company seeks to expand globally and step up vehicle development.

The idea is to infuse confidence among employees before we embark on a new journey,” said a top company official, seeking anonymity. “Our intent was very clear. We want to be a global company, and in order to do that, we have to hold all our stakeholders together.”

Hero has 5,700 employees in all, according to a spokesperson who didn’t provide a break-up of white- and blue-collar workers..

The pay increase for blue-collar workers will be spread over three years depending on their staying with Hero. In the first year, they will be paid 50% of the increase, and 25% each will get added to their pay in the second and third years.

Hero confirmed the pay revision for white-collar employees, but did not comment on workers’ pay, in an emailed response. It said the company gives utmost importance to the welfare of employees and their families.

“In keeping with this objective, the company, as a matter of practice, undertakes revision of the compensation and benefit systems from time to time,” a company spokesperson said in the email. “As a part of this routine initiative, we have also recently undertaken a revision of the compensation structure across the board within the company.”

Another person familiar with the development said the step was aimed at stemming departures, especially after the company parted ways with former joint venture partner Honda Motor Co. Ltd.

“The white-collar employees have got a pay hike of 30%,” this Hero employee said on condition of anonymity. “The exercise is an attempt to contain attrition as people had started leaving the firm after the split.”

The company did not respond to a question on whether attrition was a reason for such a step. Neither did it explain the rationale behind such an exercise in the middle of the fiscal year.

It said the move “aims at providing alignment to the best global practices in the area of compensation and benefits, thus ensuring that we truly unleash the human potential and create a sense of achievement as we stride towards our new goals”.

The second person cited said the wage structure for blue-collar workers in the Gurgaon plant is up for renewal in 2012. “Wages of Dharuhera workers were revised earlier this year,” he said.

Despite most sectors, including cars and commercial vehicles, suffering a slump, two-wheeler sales have not been hit and Hero has benefited from that.

The increase in staff cost will not have much impact on profit as there has been a rise in net sales, which have widened the margin to 15.8% in the second quarter of the current fiscal from 11.2% in the third quarter last fiscal, said Nikhil Deshpande, a sector analyst with PINC Research, a Mumbai-based brokerage firm.

“The staff cost will remain around 3% (of net sales). I think raw material costs will impact its margin more than the expenditure made on its employees,” he said. The staff cost has gone up to Rs. 180 crore from Rs. 156 crore in the same period.

The company sold 3.5 million units in the seven months to October, registering a growth of 18.54% from the year-ago period. In the first two quarters of this fiscal, Hero posted record net profits of Rs. 558 crore and Rs. 604 crore, respectively.

Staff costs are set to increase further as Hero looks to expand operations overseas and it invests heavily in its own research and development (R&D), said an expert with a leading consultancy, who did not want to be named.

“They have been on a hiring spree since the beginning of this year,” he said. “Most of the hiring is taking place in the R&D department as it wants to be self-dependent for technology and it wants that to happen as soon as possible.”

The company has been actively strengthening its R&D team by hiring engineers from rivals such as Bajaj Auto Ltd and TVS Motor Co. Ltd. Hindustan Times reported in March that the company has appointed long-term Bajaj Auto veteran T.M. Balaraman as a technical adviser to its R&D team.

Since then, it has hired at least 250 engineers and plans to take on at least 100 more in the coming months. The company plans to deploy its R&D executives in areas such as regulations, design, technology and engine development to bring a greater focus to the growing talent pool. It is also in the process of setting up its own R&D centre.

“Besides, they should be able to start their export operations in this fiscal. This will require a massive investment for creating a marketing network abroad,” said the expert with the consultancy firm..