LOW RISE

EMPLOYERS WILL STAY CONSERVATIVE ON SALARY HIKES THIS YEAR, THOUGH BUSINESS SENTIMENT IS LOOKING UP

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.

THE LOWEST WAGE HIKE IS EXPECTED IN THE LOGISTICS SECTOR (8.1 PER CENT), ALONG WITH BANKING AND FINANCIAL SERVICES (8.6 PER CENT)