India Today - - INSIDE - By M.G. Arun

Em­ploy­ers are not likely to be lib­eral with purse strings this year, de­spite busi­ness pick­ing up

IT’s ap­praisal sea­son and there’s much an­tic­i­pa­tion in the air about what sort of hike is in store. Going by the sur­veys and feed­back from man­power man­agers, there may not be much to cheer about for lower- and mid­dle-rung work­ers, un­less the pos­i­tive sen­ti­ments in the busi­ness en­vi­ron­ment trans­late into real in­vest­ments, throw­ing open bet­ter job op­por­tu­ni­ties.

Going by the es­ti­mates, em­ploy­ers have cho­sen to be ‘cau­tiously op­ti­mistic’ when it comes to re­ward­ing staff in 2017. A KPMG sur­vey says the av­er­age pro­jected in­cre­ment for the year 2017-18 is 9.7 per cent, a de­crease of 0.6 per cent from 2016-17. Man­power or­gan­i­sa­tions say most em­ploy­ers would pre­fer to be con­ser­va­tive on salary hikes this year com­pared to the pre­vi­ous years.

“There is bound to be muted salary growth at the bot­tom of the pyra­mid, since there is plenty of labour there,” says Man­ish Sab­har­wal, chair­man of man­power firm, TeamLease Ser­vices. More­over, the in­vest­ment cy­cle hasn’t started and inflation is within con­trol. “In the past few years there were big salary hikes be­cause inf la­tion was spi­ralling out of con­trol,” he ex­plains. In the top end, on the other hand, there will be a “del­i­cate equi­lib­rium”, he says. If the capex cy­cle starts, wage in­creases will be at much higher lev­els.

Man­u­fac­tur­ing blues

The rea­sons for a gen­eral scep­ti­cism about staff com­pen­sa­tion are not too hard to find. While the In­dian econ­omy has grown much bet­ter in comparison to global mar­kets, some sec­tors have not taken off as ex­pected. De­spite the govern­ment’s high-deci­bel ‘Make in In­dia’ cam­paign, man­u­fac­tur­ing is still stut­ter­ing. Pri­vate in­vest­ment growth has been fall­ing since 2012, and was in the neg­a­tive ter­ri­tory for much of 2016. De­spite ef­forts by the Cen­tre as well as the var­i­ous states to im­prove ‘ease of do­ing busi­ness’, the coun­try still ranked a low 130th in the World Bank’s rank­ings in Oc­to­ber 2016. Land ac­qui­si­tion still re­mains tough in In­dia, with end­less lit­i­ga­tion stymy­ing man­u­fac­tur­ing projects.

Hardly had the econ­omy started to show some green shoots—inflation tamed, 7 per cent plus growth, higher govern­ment spend­ing to make up for the dip in pri­vate in­vest­ment—when came the de­mon­eti­sa­tion ex­er­cise, which sucked

out cur­rency worth Rs 15.4 lakh crore from the sys­tem. While the in­tent, os­ten­si­bly, was to get rid of black money, it left many sec­tors in the red for months. Or­gan­ised re­tail, FMCG and auto com­pa­nies were among the worst hit, not to men­tion the tens of thou­sands of jobs lost in the in­for­mal sec­tor. The ef­fect of de­mon­eti­sa­tion man­i­fested it­self in the GDP num­bers for the fourth quar­ter of 2016-17, with the econ­omy grow­ing at just 6.1 per cent com­pared to 8 per cent a year ago.

Com­pa­nies in the life sci­ences, pharma and health­care seg­ments are ex­pected to of­fer the highest salary hikes in 2017-18 at 11.4 per cent, ac­cord­ing to KPMG. In­ter­est­ingly, de­spite the trou­bles in the e-com­merce sec­tor, where com­pa­nies such as Snapdeal and Flip­kart have seen huge markdowns in val­u­a­tions, the re­tail seg­ment is ex­pected to of­fer an 11.1 per cent hike in wages, only marginally down from the pre­vi­ous year. Other sec­tors ex­pected to give double-digit hikes to staff are me­dia and ad­ver­tis­ing (10.6 per cent), con­sumer goods (10.3 per cent) and auto and auto com­po­nents (10.1 per cent) sec­tors. The low­est hike is ex­pected in the lo­gis­tics sec­tor (8.1 per cent), where In­dia’s ail­ing in­fra­struc­ture has been its Achilles heel; along with the bank­ing and fi­nan­cial ser­vices (8.6 per cent) sec­tor, where ris­ing bad loans have dealt a body blow to the abil­ity of sev­eral state banks to lend to big projects.

Green shoots

Though the econ­omy doesn’t present a pretty pic­ture, the double-digit growth ex­pected in salaries in cer­tain sec­tors should help gen­er­ate some pos­i­tive sen­ti­ment, say ex­perts. “Most com­pa­nies, like those in the au­to­mo­tive sec­tor, are back to pre-de­mon­eti­sa­tion highs,” says E. Balaji, who heads HR at Chen­nai-based TVS Lo­gis­tics. Sales and rev­enues have gone back to nor­mal lev­els, and the ris­ing stock mar­kets and prospects of a good mon­soon have boosted sen­ti­ment. The rise of the stock mar­kets is par­tic­u­larly good for the fi­nan­cial sec­tor as sev­eral ini­tial pub­lic of­fer­ings (IPOs) of firms are likely to hap­pen, he adds. How­ever, ‘over-hir­ing’ in an­tic­i­pa­tion of higher de­mand (as has hap­pened in the past) is un­likely, and that will sober down com­pen­sa­tion pack­ages and salary hikes too.

A sur­vey of 2,000 re­cruiters by naukri.com in Jan­uary 2017 showed that a big chunk of re­cruiters (60 per cent) chose to limit hikes within the 5-15 per cent range in 2015-16. The sur­vey was con­ducted among em­ploy­ers in IT (25 per cent of all those who par­tic­i­pated), bank­ing and fi­nan­cial ser­vices, con­struc­tion and en­gi­neer­ing, au­to­mo­biles/ auto an­cil­lary, phar-

ma/ health­care, tele­com and var­i­ous IT-en­abled ser­vices, in­clud­ing BPOs. Only 14 per cent of those sur­veyed said they paid hikes of 15-20 per cent, com­pared to 25 per cent em­ploy­ers who gave such hikes in 2014-15. The trend is likely to con­tinue this year too.

Con­sult­ing firm Aon Hewitt has more bleak news for the work­force. It es­ti­mates that In­dian com­pa­nies are likely to give the low­est av­er­age pay hikes in eight years in 2017 as they battle global and do­mes­tic un­cer­tain­ties. Its es­ti­mate of an av­er­age in­cre­ment of 9.5 per cent, a shade lower than KPMG’s es­ti­mates, is the low­est they would be re­ceiv­ing since 2009, when com­pa­nies were drawn into a global fi­nan­cial cri­sis. Aon Hewitt also pre­dicts that e-com­merce com­pa­nies will of­fer the most at­trac­tive hikes, at 12.4 per cent, fol­lowed by life sci­ences (11.3 per cent), pro­fes­sional ser­vices (10.9 per cent) and en­ter­tain­ment & me­dia (10.3 per cent). The tra­di­tional brick-and-mor­tar sec­tor was again the lag­gard, with the ce­ment busi­ness at the bot­tom (7.6 per cent).

Hope for out­liers

De­spite be­ing cau­tious, em­ploy­ers are likely to re­ward those who come up with ex­cep­tional per­for­mances, as in pre­vi­ous years. “Em­ploy­ers will con­sider who the valu­able em­ploy­ees are, and re­ward them 1.5-2 times the nor­mal,” says Balaji. For in­stance, the rain­mak­ers in busi­ness devel­op­ment are likely to see a 25-30 per cent jump in salaries, he adds. The Aon Hewitt re­port cor­rob­o­rates this view. It says that per­form­ers will be re­warded with a salary hike 1.8 times higher than the av­er­age in­cre­ment. How­ever, the num­ber of those re­garded as top per­form­ers is de­clin­ing. Only 31 per cent em­ploy­ees were found to be key in 2014-16, com­pared to 39.5 per cent in 2004-09, show­ing that com­pa­nies were of a mind to freeze salaries for the re­main­ing staff or even let them go.

Mean­while, the av­er­age vari­able pay pro­jec­tion has in­creased from 15 per cent in 2016-17 to 15.4 per cent in 2017-18. This in­di­cates that or­gan­i­sa­tions are con­tin­u­ing to move to­wards pay­ing for per­for­mance, with vari­able pay hold­ing a higher per­cent­age in the ag­gre­gate cost to com­pany (CTC) fig­ures. The highest vari­able pay, says KPMG, as a per­cent­age of the CTC, is re­ported by the bank­ing and fi­nan­cial ser­vices sec­tor, re­flect­ing the tough busi­ness en­vi­ron­ment in which those com­pa­nies are op­er­at­ing. Al­most 92 per cent of re­spon­dents in the KPMG sur­vey said they have a vari­able pay pro­gramme in their or­gan­i­sa­tion. The most preva­lent pro­gramme among th­ese is the in­di­vid­ual per­for­mance awards com­monly given to mid­dle man­age­ment. The level of salaries in or­gan­i­sa­tions is also linked to at­tri­tion. Prospects of bet­ter pay else­where were the big­gest rea­son for at­tri­tion.

The highest at­tri­tion was re­ported by the re­tail sec­tor, with ecom­merce see­ing the most with an av­er­age vol­un­tary an­nual at­tri­tion of 20.4 per cent, said the KPMG re­port. Per­for­mance-based vari­able pay, recog­ni­tion awards and re­ten­tion bonuses are con­sid­ered the top com­pen­sa­tion levers for ta­lent re­ten­tion.

Mixed bag for IT

Com­pa­nies in the IT sec­tor, de­spite the neg­a­tive head­winds from higher pro­tec­tion­ism in mar­kets such as the US and Aus­tralia, and a slow­ing growth in busi­ness, have re­warded their top ex­ec­u­tives hand­somely, some­times even invit­ing in­vestor ire in the process. In­dia’s largest IT firm, Tata Con­sul­tancy Ser­vices, of­fered over 31 per cent hike to key man­agers in 2016-17, while the rest of the staff got an av­er­age salary in­crease of around 10 per cent. N. Chan­drasekaran, who was CEO (he’s now Tata Sons chair­man), earned over Rs 30 crore dur­ing the year, while Ra­jesh Gopinathan, the new CEO, earned Rs 6.2 crore. TCS had a to­tal staff strength of 387,223, as of March 31, 2017.

In­fosys, mean­while, gave a 60 per cent hike to nine of its top lead­ers, and in­curred an ex­pen­di­ture of Rs 107 crore in stock com­pen­sa­tion, me­dia re­ports said. In April this year, In­fosys founder N.R. Narayana Murthy had crit­i­cised the huge pay hike given to COO Pravin Rao, say­ing it was “un­fair to the ma­jor­ity of the com­pany’s em­ploy­ees”. Rao’s fixed salary per an­num was raised to Rs 4.62 crore, while the vari­able com­po­nent of his pack­age stood at Rs 3.87 crore. He is also el­i­gi­ble for Rs 4 crore in per­for­mance­based stock com­pen­sa­tion.

How­ever, things are not too rosy with mid-level em­ploy­ees in sev­eral IT com­pa­nies. Com­pa­nies like Tech Mahin­dra, Wipro and Cog­nizant have laid off thou­sands of their staff. “In the IT sec­tor, the mid-level staff will be at the re­ceiv­ing end of the down­turn,” says Sab­har­wal. Many of those at the gen­eral man­ager level, who got good hikes dur­ing the IT boom, will find the going tough. But given that there is a dearth of skilled en­gi­neers at the en­try level, salaries are likely to re­main firm there, he adds.

The trends are clear. While times are tough and com­pa­nies will be cau­tious in com­pen­sat­ing staff, those con­sid­ered key to the or­gan­i­sa­tion’s suc­cess can look for­ward to good hikes, as com­pa­nies pull out all the stops to com­pete in chal­leng­ing times. But un­less pri­vate ex­pen­di­ture kick­starts, ex­pec­ta­tions of a generous across-the­board hike may be mis­placed.


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