HR Connect Asia Pacific

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Alison Bond
5 years ago
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1 Salaries in India Set to Rise at the Second Lowest Rate in Years Salaries in India are projected to rise 10% in 2014 on the back of improving business confidence, positive expectations from the general elections, and moderating inflation. According to Aon Hewitt's 18th Annual Salary Increase Survey in India, the 2014 increase is the second lowest the country has seen in a decade (the lowest was in FY2009 when markets became extremely cautious after the global financial crisis). Anandorup Ghose, Rewards Practice Leader at Aon Hewitt India, commented: This period reflects the easing off of the unsustainable turbo-charged 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 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 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 slowing 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 narrowed in 2014 to about 2-3%, as compared to the 5-7% dispersion observed in Aon Hewitt Singapore Pte. Ltd. Co. Reg. No.: D 1

2 Highest & Lowest Salary Increase Projections for 2014 Lead Industries 2014 Projections Lag Industries 2014 Projections Pharmaceutical 12.0% Automotive 9.5% Chemicals 11.2% Energy (Oil/Gas/Power) 9.2% Cement 10.8% RE/Infrastructure 9.1% Engineering Services 10.6% Financial Institutions 9.1% Consumer Products 10.3% Retail 8.8% Source: Aon Hewitt Salary Increase Survey in India Other Emerging Trends from the Study With shrinking salary increase budgets, the one definitive change observed in the compensation philosophy of organizations 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 the last five years, the percentage of employees in the top performance rating has dropped by 30%, implying that organizations 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. Mr. Ghose added, Fundamentally, this is the most distinctive change in the approach towards pay management. With shrinking pay budgets, companies are more clearly differentiating talent and performance and providing better pay increase budgets to higher performers. Slow economic growth and limited opportunities in the market impacted attrition in It fell to 18.5%, almost 1% lower than previous years, with a reduction of almost 3% at the entry level. With a growing recognition that motivated, high-performing talent is a sustainable competitive advantage, organizations are reshaping their strategies to safeguard their key talent. This is reflected in the lower average attrition for critical talent of 4.5%, down from 5.7% a year ago. On the back of increased cost prudence and rewarding true performance, spending on variable pay as part of total compensation has been steadily growing over the past few years. This indicates a shift in overall pay philosophy, as employers are tying a greater percentage of each employee s pay to individual and overall company performance. Top/Senior Management see 23% of their total Aon Hewitt Singapore Pte. Ltd. Co. Reg. No.: D 2

3 compensation as variable (up from 16% in 2001) and even the lowest rung entry management gets approximately 12% of their salary as variable compensation (up from 10% in 2001). Mr. Ghose commented, While having a successful performance-based incentive plan is important, it is critical to ensure that the right set of performance measures is used for the plan. We often find that companies focus on the wrong drivers of performance and value, or let legacy rules and metrics distort the current performance picture. Industry Outlook Pharmaceutical Engineering Services Consumer Goods The Pharmaceutical Industry, with a projected revenue Compounded Annual Growth Rate (CAGR) of 12% and backed by higher disposable income, the increased penetration of health insurance, focused medical infrastructure improvements, and increased consolidation within the sector, has projected the highest salary increase for 2014 at 12%. Factors such as availability of qualified talent; cost effectiveness; capability to deliver high-value, complex services; and abundance of design opportunities in domestic sectors like power, infrastructure, mining, oil & gas, etc., make the longterm growth projection robust for the Engineering Services Industry. This reflects in the industry projecting a high salary increase of 10.6% in The Consumer Goods Sector has been among the top salary increase industries over the last five years, and remains so this year, though the growth has come down compared to earlier years. Factors such as the rise in competition; pressure on margins given the high input prices; high spend on advertisements & promotions to fight competition, amid limited scope for increasing prices; rising interest rates and import costs; and cuts in discretionary consumption expenditure took the sheen off the Consumer growth story in Accordingly, the projections for this year stand at a conservative 10.3%. Automotive The Automotive Sector in India continued to slow down in 2013 in terms of growth, in view of increasing fuel prices, rising interest rates, and the economic slowdowns impacting consumer spending. The industry projected a modest salary increase of 9.5% in 2014, down from 2013 s projection of 11%. Aon Hewitt Singapore Pte. Ltd. Co. Reg. No.: D 3

4 Financial Services RE/Infrastructure Unstable macroeconomic conditions in India for most of 2013; M&A deals drying up; low consumer spending impacting sectors like insurance, retail broking and retail banking; along with the volatile stock markets; made it a tough year for the Financial Services Industry. The projected salary increase for 2014 is 9.1%, a marginal increase from the actual percentage of The industry remains hopeful of a stronger performance in 2013, with the announcement of the new banking licenses and improving global cues. Non-Banking Financial Companies led with a projected 2014 increase of 10.1%, followed by Insurance at 9.4%, Asset Management at 9.3%, and Banks at 9.0%. Driven by macroeconomic and sector-specific challenges such as delays in clearances, lack of funds, and projects getting postponed, the RE/Infrastructure Sector is projecting a relatively low salary increase of 9.1%. However, the sector is hopeful of resurgence in 2014, on account of upcoming general elections and government support for infrastructure projects across roads, railways, and airports. The Cabinet Committee on Investments has cleared the way for 296 projects with an estimated projected cost of approximately USD 10,630. Hi-Tech The Hi-Tech Industry projected an average salary increase of 10.2% for 2014, with the semiconductor industry leading at 11.3%, closely followed by software products at 10.8%. The IT market is expected to grow by 13 to 15% during FY , driven by factors such as greater offshoring by certain countries, and the offshore outsourcing model gaining acceptance in previously untapped economies. Growth is also expected from somewhat underpenetrated domestic markets, coupled with rising consumer awareness, and government initiatives. ITeS In the face of considerable global uncertainty, the Indian ITeS industry is projecting an average increase of 9.9% for Banking and other captives are projecting a salary increase of 10.3%, on the back of a stronger US dollar. Thirdparty service providers, on account of tougher global economic conditions and increased cost pressures, are projecting an average salary increase of 8.2%. The Knowledge Process Outsourcing firms are witnessing a resurgence and renewed investments, thus their salary increase projections for 2014 are up from earlier this year to 11.9%. Aon Hewitt Singapore Pte. Ltd. Co. Reg. No.: D 4

5 Anandorup Ghose added, Wage inflation will continue to be a high pressure point for sectors where wage cost is a significant part of operating expenses and revenues. This year will be a complex one for organizations, offering no clear signals as to how either inflation or business numbers will move in the next two quarters. It might be a good time to be conservative and focus on ensuring that key compensation and productivity metrics are actively tracked. About Aon Hewitt s Salary Increase Survey in India Aon Hewitt surveyed over 500 organizations representing 20 primary and 30 secondary industry sectors. This is the most comprehensive research in the area of rewards and performance. The study measures actual and projected salary increases, and compensation practices for five specific job categories, namely top/senior management, middle management, junior manager/professional/ supervisor, staff and manual workforce. The data for the survey was collected over December January Contact Anandorup Ghose is Rewards Practice Leader with Aon Hewitt India. He can be reached at anandorup.ghose.2@aonhewitt.com. Aon Hewitt Singapore Pte. Ltd. Co. Reg. No.: D 5

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