Entering the Era of the ‘New Normal’ in Salary Increases in India

February 18, 20168:31 am710 views

The attrition rate in India is dropping. At 16.3%, it is the lowest that corporate India has observed since the 2009 financial crisis. While attrition was controlled at a broader level, key talent attrition increased from 5.9% in 2014 to 7.3% in 2015.

Increasingly organisations are developing separate retention plans and policies for their top talent. While rewards continue to be a strategic key talent retention tool to ring fence top talent, programs around leadership opportunities and coaching, overseas assignments, fast track programs for hi – potentials are fast gaining prominence.

Companies across industries are continuing to take a cautious stance and are not going for aggressive pay increases. In many cases, the industries have taken a marginal dip in their overall budgets as compared to 2015 actual spends.

Sectors such as 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. The ‘Early Stage Companies/Start Ups’ stand out despite being in the pre-profit stage for over three years and continue to have an aggressive stand on pay.

At 15.6% salary increase projected for 2016, they feature as number one, with the closest second being Life Sciences at 11.6%.

Aon Hewitt, the global talent, retirement and health solutions business of Aon plc recently announced the 20th edition of its annual Salary Increase Survey in India. This study, the largest of its kind in India, analysed data across 700 companies. The results reflect a pragmatic approach adopted by corporate India towards pay increases.

Anandorup Ghose, Partner at Aon Hewitt India, commented: “With this year’s numbers we are seeing a confirmation of our view that Indian companies are taking very clear steps to arrest the steady increase in compensation budgets. The lower inflation rates in the economy has also helped companies in deciding on the reduced salary increases without creating too much of a disruption in the lives of employees.”

See: 82% Indian Employees Intend to Switch Jobs in 2016

S.No Industry Proj Salary Increase (2016) S.No Industry Proj Salary Increase (2016)
1 E-commerce  / Early Stage 15.6 11 Engineering Services 10.2
2 Life Sciences 11.6 12 Energy (Oil/Gas/Coal/Power) 9.9
3 Media – Electronic/Print 11.2 13 Hospitality & QSR 9.9
4 Hi Tech/Information Technology 10.8 14 RE & Infrastructure 9.8
5 Consumer Products 10.8 15 Cement 9.8
6 Automotive/Vehicle Manufacturing 10.7 16 Transportation/ Logistics/ Shipping Services 9.7
7 Retail 10.7 17 Telecommunications Services 9.7
8 Chemicals 10.7 18 Metals 9.3
9 ITeS 10.3 19 Financial Institutions 8.8
10 Engineering/Manufacturing 10.3

Increasing Focus on Talent and Merit

Over the last few years, while employee expectations have gone up, Aon Hewitt’s data shows that companies are managing these higher expectations carefully and are not getting swayed by it. The focus on performance differentiation is far higher with a larger proportion of budgets being allocated to higher performers.

Investing in key talent emerged as a major trend. Key talent would mean high potential and hot skills apart from high performers. The payout gap between an average performer and key skills is growing year on year. At 63%, this is the highest differentiation India Inc. has observed.

Additionally, in the last five years, the percentage of employees with top performance rating has dropped by close to 30%, implying that organisations are not hesitating to differentiate sharply on the basis of performance and are allocating the share of the total increase budget accordingly.

India places 8.2% of its overall population at top rated. This number has significantly dropped in the last five years.

Anandorup Ghose concludes: “At an average pay increase budget of 10.3% across India, HR managers will be pushed to ensure they are being more innovative and thoughtful in how they reward their top performers while ensuring they are able to retain and motivate the rest of the organization as well.”

Also read: Indian Employers Expect the Hiring Pace to Remain Robust in Q1 2016

Image credit: annasophiawatts.com

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