Talent acquisition and retention is increasingly becoming one of the most critical challenges for organisations as the demand-supply gap keeps increasing. The recent NASSCOM-Hewitt total reward study supports this view.

India is forecast to become the world's fastest growing economy between 2006 and 2020. The war for getting good talent is equally difficult as retaining them over the long term.

Companies regarded as "employers of choice" believe that people are central to their organisational success. They develop HR strategies that are clearly aligned to their organisation's business goals. Typically, such organisations have also succeeded in pioneering innovative concepts in employee rewards.

Beside salaries, these companies also work proactively in providing a better work environment as well as learning and development opportunities. They also find innovative ways to identify their top 10 per cent performers and bottom 10 per cent laggards and use this as the base for differentiating compensation packages since it is impossible to reward very high salaries to each employee.

Lately India has emerged among the countries with the highest salary increases. This is because of the phenomenal increase in job requirements especially in areas where domain-specific expertise is critical and for people in the mid and upper management levels who have acquired crucial hands-on experience.

A new threat to Indian companies is emerging in the form of growing opportunities created by the ageing population in the Asia-Pacific region is changing rapidly. So as the working population in the countries in theis region ages, companies from these countries are showing signs of recruiting from India to replenish their own retiring pool of employees.

As these companies step up the pace of poaching, the depleting manpower stock will impact Indian companies. Some farsighted HR managers are analysing these demographic shifts, once seen as an intellectual exercise, aware that the impact of these trends is closer at hand than once thought.

Shortage of talent in India and the associated high employee turnover (estimated at 50 per cent annually in some sectors) impacts companies on multiple fronts. It leads to wage inflation and additional hiring / training / absorption costs thereby impacting cost competitiveness.

Of late the new phenomenon of employee attrition in certain industries, particularly the IT and ITeS sectors has been threatening the operational stability of companies, pushing up compensation costs as employers have been forced to compete to attract employees with the requisite skills-sets and equally to retain them.

Besides cost, attrition negatively impacts quality and increases risk of security breaches. It also limits development of middle management capabilities in the industry, and impacts the development of knowledge management within companies.

Moreover, frequent job changes also deny employees the opportunity to acquire progressively enhanced job responsibilities and company-wide experience at different levels. This is particularly true in the BPO industry where people of often leave to join at the same level at higher salaries.

However, there are limits to the amount companies can keep increasing their manpower costs, given the need to compete and maintain their bottom lines. HR policies and procedures must adapt to the changing environment.

Therefore, HR managers will need to look at factors beyond immediate pay. Differentiation factors like the work environment and prospects for career growth are some factors that are increasingly being developed by companies as a part of their retention strategy.

Some companies have been experimenting with treating employees as customers and self-managed employees in an effort to boost their emotional comfort and bonding with the company.

Multinational, companies, particularly banks, in India usually try to foster employee-friendly policies with frequent opportunities for staff and managers to meet informally at social settings. They realise that if employees are critical for stability, they must treat their people accordingly.

In the financial services sector companies focus strongly on career development solutions and succession planning. On the other hand, the IT sector, despite some sterling efforts by a handful of the big companies, most others still need to get their act together instead of raising salaries just to keep up with the competition.

Incidentally, talent constraints and skill shortages are forcing companies to explore alternative locations.

To beat the cost of high manpower and infrastructure in the metros, several companies have relocated operations to Tier II and Tier III towns like Indore, Vadodara, Nashik, Pune, Cochin and Mysore that offer lower infrastructure cost, equivalent manpower at almost half the rates, and, best of all, a fraction of employee attrition, as smaller town employees prefer not to hop jobs as frequently.