Compensation & benefits: Recap of 2016 & trends for 2017

2016 saw an evolving compensation and benefits scenario as companies redefined and relooked at their strategies for this domain holistically. Reward strategies have been looked at in new light by organizations and have started being treated as the key components that aid business functioning. The year saw the emergence of reward trends such ESOPs, health and wellness programs, maternity benefits and rise of flexible benefits in companies, however, benefits largely remained pro-women, especially maternity related benefits that were introduced by organizations in view of the Maternity Benefit (Amendment) Bill 2016 that was passed by the parliament.

On the compensation front, 2016 was good year for India as it remained largely unaffected by global economic slowdown owing to incessant inflow of FDI under government’s ‘Make in India’ initiative as per the Michael Page report. In March, foreign direct investment saw a 20 percent jump to US$ 40.46 billion (2.7 trillion INR), compared with US$30.93 billion in the 2014/15 fiscal year as reported by the Wall Street Journal. The key sectors that experienced major growth were the financial services sector, as more non-banking financial companies (NBFCs) established themselves, along with the healthcare sector. So far, the estimates point to India being steady amidst the global volatile environment as India’s gross domestic product is projected to remain steady at 7.6 percent in 2017 as well.  

In the backdrop of volatile markets, the challenge for corporates in 2016 was to judiciously use their limited salary budgets as frequent shifts in the salary pay structures were caused due to wide talent crunch in the market. As per Towers Watson 2015-161 Asia-Pacific Salary Budget Planning Report, India saw an overall salary increase of 10.8 percent. Factoring inflation of 6.1 percent, the net salary increase in 2016 was marginally higher at 4.7 percent as against 4.5 percent last year (2015), when the inflation was at 5.9 percent.

India’s energy sector projected the highest salary increase in 2016 with 11.50 percent. It saw some big changes after the Government’s push towards the sector, primarily in the renewable energy space. Pharmaceutical and Health Sciences witnessed projected salary increase of 10.90 percent. The high tech sector in India particularly saw an increase of 0.70 percent in salary at 10.7 percent (as compared to 10 percent in 2015) and this was largely driven by new technologies such as wearable devices, cloud computing etc. combined with the government’s initiative ‘Digital India’ that propelled the demand for talent, compensation and performance. The financial services sector in India saw a modest increase of 0.40 percent in 2016.

Adopting a microscopic view, growth in salaries primarily occurred in five sectors — startups with (15.6 percent), followed by life sciences (11.6 percent), entertainment media (11.2 percent), Hi-tech (10.8 percent) and consumer products (10.8 percent). On an average, there was 10.3 percent salary increase across sectors as revealed by the 20th edition of the Annual Salary Increase Survey in India 2016 by Aon Hewitt.

Salary is not the only element that provides value proposition to the employees; along with it, additional benefits and rewards also play a strategic role. Rewards and benefits programs acted as key players in 2016. The five strategic compensation and benefits trends3 that drove business success in 2016 were segmentation and differentiation, flexibility, health and wellness, communication and analytics, and decision-making. Employee segmentation and pay differentiation were the key factors as with limited salary budgets, organizations were unable to dole out the one-size-fits-all increases. Flexible benefits were one of the greatest engagement tools that offered wide array of benefits to employees. The Thomson Online Benefits4 indicated that over the last ten years Flexible Benefits has become one of the most promising ways to reward employees. Today, 58 percent of multinational companies offer some flexibility over benefits and 24 percent are planning to incorporate this into their organization. Health and wellness programs were another trend for many organizations that became increasingly popular in 2016. Many organizations implemented wellness programs and affirmed that such programs increased organization’s productivity. According to People Matters and Truworth Wellness study, 91 percent companies have wellness benefits, 71 percent offer regular health check-ups and around 69 percent offer education and awareness on healthy lifestyle. 

Stock-based incentives were another popular reward trend. Employee Stock Options and its variants such as stock grants, stock purchase plans gained momentum. This reward system enabled employees to earn wealth greater than the compensation offered by the company and offered the freedom to link employee rewards with individual and company’s performance.

Also, under benefit arena, pro-women benefits saw a massive leap in 2016. With the Maternity Benefit (Amendment) Bill, 2016, increasing the maternity leave with full pay from 12 to 26 weeks, several companies came up with their own lucrative benefits for working mothers. 

Many organizations followed the league of the Maternity Benefit (Amendment) Bill, 2016, and devised their own solutions to allow women more flexibility at the workplace. 

Schneider Electric for example has developed an engagement model that the company initiated allowing all women employees going on maternity leave, with a buddy, to ensure communication with the organization was maintained and that the right role was identified before they rejoined the organization. 

Technology has played a significant role in enabling companies. Genpact’s ‘Returning Moms Program’ offers women the choice to work in shifts in their first year at office after a maternity break, along with the

freedom to choose company locations closest to home for work. SAP Labs has a ‘Run Mummier’ app assigns official buddies to expecting mothers who advise them on the benefits available to them. It facilitates interactions during maternity leave and also enables coaching facilities for employees on returning to work while Infosys’s Sapphire mobile application allows women going on maternity leave to stay connected to the company. The app keeps the employees up-to-date on organizational developments and projects that they can join when they return. 

Compensation trends: Salaries in India are projected to increase by 10 percent in 2017 according to a report released by leading global advisory, broking and solutions company Willis Towers Watson. When compared to the other developed and key emerging markets in the Asian region, India’s 2017 projected salary increase is highest. The other countries that make up the top five in this group are Indonesia at 9 percent, Sri Lanka at 8.9 percent, China at 7 percent and the Philippines at 6.4 percent. 

According to the 2017 Michael Page India Salary and Employment Outlook report, overall, the annual salary hikes are expected to be between 6 and 15 percent across all disciplines. Start-ups will typically offer a 10 to 15 percent increase in fixed salary to candidates from bigger organizations, but the actual cost-to-company could be higher with the inclusion of stocks. Switching between similar organizations brings a 15 to 25 percent increase for candidates, depending on seniority levels. The pharmaceutical sector continues to project higher salary increases as compared to most other sectors at 11 percent, while the financial sector is likely to remain well below average at 8.5 percent. The projected salary increase in the high tech sector for 2017 is likely to be the same as the previous year at 10 percent. 

Employee Benefit Trends: As per projections, voluntary benefits will bein high demand by employees in 2017 as well. Voluntary benefits6 are benefits that are presented by an employer but paid partially or solely by employees through deferred payroll. In 2017, it is projected that the scope of voluntary benefits would widen as it would include critical illness insurance, short-term loans, education loans, lifestyle benefits such as health club memberships, legal services, pet insurance etc. Also, companies will offer payroll deductions to cover the expense of wearable technology. 

With increasing competition for talent, it will be a challenge for organizations to optimize rewards and benefits programs that attract, retain and engage talent. And along with tangible rewards, organizations will need to realize the importance of intangible rewards such as appreciation, recognition and empowerment.