A 10% salary hike expected this year
In the backdrop of improving business confidence, positive expectations from the general elections, and moderating inflation, the annual salary increase survey in India by Aon Hewitt has said that 565 firms across the country are projecting a 10% salary increase for 2014.
With shrinking salary increase budgets, the one definitive change observed in the compensation philosophy of organisations in India is the increased reinforcement of the performance and rewards linkage. Top performers are projected to receive an average 15.3% increase in 2014, almost 1.5 times the average increment provided to employees meeting expectations.
As far as the annual salary hike is concerned, it is marginally higher than the projections made in September 2013, but the lowest the country has seen in a decade (barring the financial year 2009 when markets became extremely cautious post the global financial crisis).
Anandorup Ghose, Rewards Consulting Practice Leader at Aon Hewitt India, says that “this period reflects the easing off of the unsustainable turbocharged pre- crisis economic growth. Even though growth appears to be strengthening in both advanced and developing economies, it is expected to be muted and slower paced than in the pre-2008 era. This sentiment is reflected in India’s slightly higher salary increase projections for 2014.”
Sectors largely reliant on the domestic economy such as pharmaceuticals, chemicals, engineering services and consumer goods, are projecting the highest salary increases, typically above 10% for 2013-14. In these industries, compensation costs represent a smaller percentage of the total cost structure. However, the cautious streak is evident as projections for 2014 have reduced by an average of 30 basis points from the actual increases provided in 2013 by these industries.
Service industries like retail, financial services, and hospitality bring up the rear in salary increase projections, with these businesses impacted by the slow- ing down of the economy and consumer spending. In these industries, compensation costs are a significant portion of their total cost structure, thus managing salary costs has become an important element in their cost management strategy.
It is important to note that the dispersion between the highest paying and the lowest paying industries has also narrowed in 2014 to about 2% to 3%, as compared to the 5% to 7% dispersion observed in 2013.
With shrinking salary increase budgets, the one definitive change observed in the compensation philosophy of organisations in India is the increased reinforcement of the performance and rewards linkage. Top performers are projected to receive an average 15.3% increase in 2014, almost 1.5 times the average increment provided to employees meeting expectations. This gap has been widening over the last decade. Additionally, in just the last five years, the percentage of employees in the top performance rating has dropped by 30%, implying that organisations are not hesitating to differentiate sharply on the basis of performance and then allocate a disproportionate share of the total increase budget to top performers, thus encouraging a high performance culture.