Rather than focussing only on salaries and other monetary benefits, the companies are adopting an all-inclusive rewards package that comprises intangible benefits such as a better learning experience, exposure to new projects and the work environment, HR consultancy firm Mercer said in a report.

Noting that the current economic situation has provided the companies an opportunity to revisit their human resource practices, Mercer said that "differentiation in pay on account of performance is being built in to look at hiring and compensation" by the firms in their efforts to control costs.

The study, titled 'Compensation Practices in India 2008', reveals that the most companies are now linking performance with increments increase and are rewarding the top performing employees.

Most companies said that salaries hikes are increasingly being decided by the performance, market competitiveness and internal parity, it added.

"A more comprehensive approach towards rewards driven by more robust performance management programmes is expected to foster employee engagement while keeping reward costs affordable and sustainable," Mercer said.

"Clearly the approach adopted is not a 'one size fits all' one but has become more sophisticated in that compensation, benefits and careers are designed to meet the different expectations of the diverse workforce segments," Mercer India business leader for information product solutions Gangapriya Chakraverti said.

The report has taken into account over 70 MNCs and aims to provide an insight into the ways these companies approach compensation and points towards a credible benchmark of the best practices which could be adopted by other companies.

The Mercer study said that most companies participating in the survey indicated presence of a merit increase policy to reward employees and has adopted a funding approach through budgeted incentive pools for their variable pay plans.

"The increase in the need to balance compensation budgets and employee costs calls for innovation in designing the total remuneration package," she added.

The study found out that companies realise that talent is their only sustainable form of competitive advantage as firms are trying to attract, retain, engage and develop high impact employees that can sustain businesses over the long term.

Mercer conducted the survey to address the information gap on the prevailing trends and practices on compensation in corporate India.

"It aims to help companies strike a balance between effective compensation strategies and workforce productivity and guide professionals to optimise their compensation budgets," Mercer added.