The slowing salary hikes at Indian companies

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New Delhi: Indian companies, across industries, have consistently paid lower salary hikes over the past 10 years. Experts don’t see the decade-old golden days of good pay hikes return, any time soon.

Indian industry’s average pay hike has registered a steep drop from 15.1% in 2007 to 10.2% in 2016, an analysis of India Salary Increase Survey by consulting firm Aon Hewitt revealed. The company projects an average increment of 9.5% in 2017, the lowest since 6.6% in 2009, which was a knee-jerk reaction to the global recession due to collapse of Lehman Brothers.

The India Salary Increase Survey by Aon Hewitt is one of the largest and most comprehensive study on performance and rewards trends in the country.

“Even a 9.5% average salary increment might look promising, but is not. For example if you see Reserve Bank of India (RBI)’s latest householders inflation expectations surveys, the real pay increases adjusted for inflation would look very muted, and add to that the tax surcharge for employees earning more than ₹50 lakh, it translates into negative real pay increase,” said Anandorup Ghose, partner at Aon Hewitt India.

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Back in 2007, the telecom and banking, financial services and insurance (BFSI) sectors were among net acquirers of talent, whereas today, there is no one particular sector, Ghose added.

Consumer products and life sciences are some industries that have emerged as market leaders in salary increase in the past decade.

Pay hikes in life sciences sector picked up from 13.2% in 2007 to 16% in 2008 only to drop to 11.3% in 2017 (projected), with minor fluctuations. In consumer products, for instance, employees received 13.4% average pay hikes in 2015 and might get 10.2% in 2017, Aon Hewitt data shows.

“The fast-moving consumer goods (FMCG) industry is governed by the India consumption story. The diverse demography and ever-increasing consumer base, from both urban and rural segments, provides us with huge opportunities. Giving market-linked increments is one way to retain good talent in the sector,” said V Krishnan, executive director, HR, Dabur India Ltd.

“We are aware that talent in the consumer products industry is prospective hires across every other industry vertical because of their consumer knowledge and customers connect. Apart from compensation, providing continuous learning and growth opportunities to people gives them confidence that their future is promising,” he added.

The IT sector, one of the largest employers in the country, has seen a steep drop in salary hikes too. Industry body Nasscom estimates a 3.9 million total employee base in IT-BPM industry. The average pay hikes in the IT sector dropped from 15.4% to 10.6%. After its recovery from 2.9% (in 2009) to 11% in 2010, this year’s 9.7% projection by Aon Hewitt is the lowest since then.

“I won’t be surprised if the salary increments go on a downward spiral as the traditional IT offerings—like pure play software, products and consulting services—will be increasingly substituted by automation and robotics,” said Venkat Shastry, partner at executive search firm Heidrick & Struggles

According to Aon Hewitt, salary increment percentages in certain industries, like consumer products and automobiles, for instance, don’t change significantly year-on-year as compensation costs in these industries don’t form a very large part of the overall cost structure and therefore companies can afford to broadly hold steady on pay practices.

“While it is difficult to predict which industries will provide highest pay increases in the future, sectors like logistics where there is significant activity with regard to both higher investments and goods and services tax linked benefits or NBFCs (non-banking financial companies),” said Ghose.

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