The New Normal: India's Salary Increase Story
Sagorika Roy
Senior Consultant,
Aon Hewitt
Lalit Gurnani
Consultant,
Aon Hewitt
Compensation has always been an extremely sensitive
topic for rewards and HR professionals. Salary increase
management used to constitute a lion's share in a
rewards professional's work-life. Market intelligence
and sentiments used to drive budgets and oscillating
economic performance in India was closely connected
to the salary increases offered. Market sentiments
decided budgets - almost irrespective of a firm's
affordability, business outlook and talent availability.
However, in the past 5 years, we have observed
a sea change in how rewards and HR professionals
are looking at annual salary increases. This is not just
limited to decisions on annual salary increase budgets
but also on how performance is differentiated,
the kind of attrition that is causing alarm and
whether headcount size is defining the budgets.
The decadal review showcases that the first five years
fluctuated significantly with peaks and troughs. However,
starting 2012, it's almost a plateauing line. Today India
Inc. has adopted a far more mature outlook in managing
salaries. While smartly managing wage bill is the key
objective of organizations, what really dictates the salary
increase number is the availability of employable talent.
The study shows that there is limited correlation
between inflation and GDP.
This reflects a pragmatic approach adopted by
corporate India towards pay increases. Companies
across industries continue to take a cautious stand
and are not moving towards aggressive pay increases.
What really is driving salary increase is 'Pay for
Performance'. This is true for both differentiated fixed
pay increases and high payouts in the form of bonus.
What are the Various Industries Offering?
The 20th Aon Salary Increase Survey reveals that sectors
like life sciences, media and consumer products are
projecting a higher increase than the market average.
These industries have also consistently led the salary
increase numbers since 2012. What stands out are
the 'early stage companies/startups.' In spite of being
in the pre-profit stage for over three years, most
of these companies continue to have an extremely
aggressive stand on pay. At 15.6% salary increase
projected for 2016, they feature as number one.
Increasing Focus on Talent and Merit
Over the last few years, while employee expectations
have gone up, Aon Hewitt's research shows that
companies are managing these higher expectations
carefully and are not getting swayed by them. The
focus on performance differentiation is far higher with
a larger proportion of defined budgets being allocated
to higher performers. Across the board, top performers
are expected to get 1.8 times the salary increase
awarded to average performers. This differentiation is
even higher in most service industries such as Banking
and other Financial Services (BFSI) and ITeS as well as
other industries like Fast Moving Consumer Goods/
Fast Moving Consumer Durables (FMCG/ FMCD). The
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