Salary Increase in 2017 – well, how much?
The previous year was particularly volatile. In such times, it helps a great deal if the community comes together to face the challenge and help each other stay afloat. Information sharing is one of the ways to do so. Riding on the success carved out over 2 decades, this particular study of Aon Hewitt, the “Salary Increase Trend”, is now widely regarded as its flagship research initiative. Over time, companies have leveraged the findings in determining salary increases for the year. The sample size this time was most noteworthy – about 1000 companies, of which 420 were from manufacturing (approx.) and 550 from services. It spanned across 20 industry clusters and 130 sub clusters to lend breadth, diversity and high credibility.
Key findings from the study:
- As seen across industry sectors (in 2017) in India, 67 % of the companies are experiencing business improvement (slight to massive); 25 – 26 % believe they have stabilized and only 7 % of the companies are seeing a decline. At the time of the Brexit referendum, the business sentiment wasn’t too bright, but thankfully it has shown a lot of improvement in the last couple of months.
- For over a decade, India has been leading the average salary increase percentage, followed closely by China & Philippines. In developed nations, avg. salary increases have been in the range of 2 – 4 % annually, and more in line with inflation figures. In developing nations that has not been the case and scripts a different story. Incidentally, CPI inflation in India is 3.2%, and clearly the avg. salary increase is way above. The pool of employable talent is relatively small in India, and arguably, all of corporate India Inc. is vying for the same set. Perhaps this is an explanation why there is such a big difference between avg. salary increase and inflation figures.
- Across industries, this year in India, avg. salary increase in likely to be 9.5% and for the first time in 8 years, it will be sub 10. Explanations abound – protectionism, Brexit, De-mon – and yet, market watchers at Aon Hewitt opine that avg. salary increase will not be a knee-jerk reaction this year, but a well thought out plan in most companies. This figure however is not evenly represented by orgs. of varying sizes. This brings us to the idea of salary cost / total cost (salary cost as a percentage of total cost) – if this ratio is on the lower side, companies will be better placed to pay off double digit increase in salaries.
- Right through the 90s decade, India witnessed an avg. salary increase of 18 – 19%, the base though admittedly low. By 2007, the base was considered to be moderate, and the average annual salary increase had petered down to 13 – 15%. In 2008 – 9, the world grappled with recession and the IT sector was significantly impacted. 6.6% was the average salary increase in IT in 2009. But the global economy recovered soon and the avg. salary increase bounced back to 12%. This sudden rise was much faster than even the global economic recovery, and the phenomenon came to be known as the “Yo-yo pattern.”
- The period 2009 – 16, is one marked by massive volatility which has now come to characterise as VUCA. It is not imperative any more, to pay salary hikes in double digits. Arguably, compensation trend is maturing in India and best described as the “Greying of salary increases.”
- Companies which employ more than 50 k employees, the avg. salary increase has been 8.8% (across industry verticals).
- What about reputed companies which have instant brand recall? Given their stature, is there a trade off? Well yes! Top 100 companies either based on brand recall or size, have shown an average salary increase of 8.2%, about 130 basis points lower than industry-wide average figure of 9.5%. For the IT industry in particular, indexed companies have shown 6.5% avg. salary increase. ITeS and Hi-Tech on an average show 9.7% avg. salary hike in 2017. Being more specific: Software Products (10%); Semiconductor companies (11.5%); Captives (10%); KPO (11.5%).
- Companies which have a Compensation Cost / Total Cost @ 15 – 20% or Compensation Cost / Total Revenue @ 5 – 8%, are in a stronger position to give an avg. Salary hike of 10.5 %. For the IT industry this ratio is as high as 40 – 50% which has proven to be a limiting factor w.r.t salary hikes.
A Twisted Tale of Two Sectors
Post 1991 (Liberalisation), the avg. salary increases in the services sector in India grew by leaps and bounds and outpaced manufacturing. This happened till about 2009, and after that, the trend reversed to some extent. By then, the avg. salary increase in services sector had slowed down and it was time for manufacturing sector to grow, albeit on a low base. Today, the gulf seems to have converged. Services sector growth in salaries is almost where it used to be but manufacturing is now on the decline – the base having increased considerably over the years.
A Differentiated Strategy
The pay-out to top performers is significantly differentiated. During the period 2004 – 9, it was 1.3x for top performers. Today that figure is as high as 1.8% – industry-wide. In Hi-tech and ITeS it is even higher @1.9X. In comparison, Financial Services, it is @2.1 x.
For the average performer, this year the hike is going to be one of the lowest, just as for top performers it will be among the highest. This difference will especially play out in middle management levels, and not so much in entry-level or senior leadership positions.
Key Talent Retention
Those people with critical roles / hot skills / high potential will have to be retained through compensation and additional “bouquets”. Especially with a focus on Learning & Development and future growth potential.
2016 was actually the year which had amongst the lowest rate of attrition. However, it was also the year which bled critical talent due to poaching and other factors. Key reasons: Pay, limited growth, better scope of L&D outside, insufficient challenges etc. were cited.
We were privy to these takeaways at a NASSCOM session on “Analysing Salary Hikes for IT / ITeS” presented by Aon Hewitt (Ms Poonam Chopra, Lead Compensation Business for Consumer & Life Sciences Business in India) & Mr Lalit Gurnani (Sr Consultant Compensation, IT / ITeS).
In addition we had a power-packed panel, moderated by Ms Sangeeta Gupta, Sr. Vice President, NASSCOM and the eminent speakers were:
Neeru Mehta, Vice President – People Development & Learning, Head of HR at GlobalLogic; Amrita Das – Total Rewards & Performance Management, HCL & S Viswanathan, HR Head, NIIT Technologies.