Average pay hikes in India to drop below 10% for first time in decade: Aon Hewitt

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As India’s economic growth story takes a pause due to adverse global factors and demonetization, pay hikes will for the first time in a decade, barring the abnormal 2009, dip to single- digit zone this year.

A research report brought out by human resource (HR) consultancy firm Aon Hewitt – 21st Annual India Salary Increase Survey – reveals that the average salary rise in the current year will drop to 9.5% from 10.2% last year primarily due to Brexit, changes in the US government, reduction in start-up funding and demonetization.

But the bad news does not end there. If you were to adjust this average rate of increment against the average consumer price index (CPI) or retail inflation of 3.5% then it further dwindles to 6%.

The worst-case scenario is if Aon’s forecast of average salary increase is adjusted with Reserve Bank of India’s (RBI) inflation analysis number of 8.3%, then an employee’s real pay hike would get further crimped to just 1.2%.

Anandorup Ghose, partner, Aon Hewitt India, said while the trend could be taken as “graying of salary increases in India” as it came of age, he was not sure if it was just a “blip” due to demonetization and other factors.

“The macro question remains if this (single-digit salary rise) represents a blip or a trend,” he said.

According to him, the latest salary rise number had tumbled into single digit zone because it was broad-based with no industry or sector to prop it up.

Over the last few years, e-commerce and tech firms that had got huge funding from investors had kept the Indian pay numbers high. This year, Ghose said, that push from any sector was missing.

Suchita Dutta, executive director of the Indian Staffing Federation, whose firm is predicting increments in the range of single digit to 10%-11% in 2017, said the declining trend in pay hikes has been visible since 2008-09.

“From 2008-09, that has been the case as the economy has been impacted due to a slowdown in global growth. Gone are the days when companies were doling out hikes as high as 20%, 25% 15% ..,” she said.

The heartening news is that “key talents” would continue to command higher annual raises as the variable components of their salaries go up.

“We are seeing pay differentiation between top and average performers increase. This means that salaries of average performers in an organisation will get impacted but the best performers will continue to get rewarded with good hikes,” he said.

Sector-wise, Aon projects that consumer internet companies (12.4%) would offer the highest raise followed by life sciences (11.3%), professional services (10.9%), chemicals (10.3%), entertainment media (10.3%), automobile (10.3%) and consumer products (10.2%).

Real estate and infrastructure sector, which were at the top only a few years back, has been the most hit as it has slipped to twelfth position in this year’s outlook of salary jump. Pays in cement (7.6%) and telecom industries (8.9%) will also grow at sub-10% as price and cost pressures push profits down.

Ghose does not expect salary rises to return to double digit anytime soon. Interestingly, he said hikes for Indian employees are likely to go down not because of an oversupply of the qualified or skilled workforce but because businesses are not doing well.

And as pay hikes trend southward, overall attrition rates have also cooled down but there was a divergent trend in the top performers’ segment of employees who were job-hopping more than before. Within the broad attrition number, involuntary attrition or employees fired by companies has shot up to 20% from 17%.

Even at 9.5% average salary increase, India’s number was the highest in APAC region.