The difference in distribution of merit and variable pay increases between high performers and average ones could be as high as 2-3 times
April is around the corner and, with the positive sentiment in India, everyone is expecting a bumper increase. Salary hike discussions are carried out once the more fundamental questions are answered. How is the economy and sector shaping up? How did your company perform compared to the last few years? Was the revenue and profit growth in line with the expectations of the shareholder? Was your performance considerably better than your peers? Is your company in growth or consolidation mode?
From a statistical standpoint, however, the overall salary increase projected for India in 2015 is at a stable 10.8 per cent, so companies should be budgeting for salary increases much the same as last year. That said, very few countries in APAC or around the world are looking at double-digit salary increases. With the recent decrease in inflation and oil prices, although the average salary increase for 2015 is projected at 10.8 per cent, the real salary increase (net of inflation) is likely to be much higher than last year. At the end of the day, it depends on the affordability of the company. If the company is growing at a fast rate and revenue exceeds the cost by a huge margin, it is easier to be aggressive on salary budgets than if it is a low-growth company.
Though the average salary increase in India is projected at 10.8 per cent, it does not mean that everyone will get the same increase. It implies that the wage bill for companies, on an average, will go up by 10.8 per cent, but in case of critical skill talent or high potentials the salary increase can be as high as 15-18 per cent. For low performers, it might just match the inflation rate of close to 6 per cent (as predicted by Economist Intelligence Unit). An average performer can expect a 10.8 per cent increase. Performance-based rewards will play a much more crucial role and companies will start to differentiate more to retain their critical skill staff, hot skills staff and high-potential staff. The difference in distribution of merit and variable pay increases between high performers and average ones could be as high as 2-3 times. Employee benefits are also emerging as an important driver of attraction and retention.
The pharmaceutical sector will have amongst the highest salary increases at 11.5 per cent. Patent expiries, increasing demand and encouragement for genetics have compelled companies to attract and retain talent, particularly for jobs in regulatory affairs, clinical strategy, project management and for qualified researchers.
The hi-tech industry will see increments at 10.7 per cent, up from 10.5 per cent the previous year because of the increasing demand for IT and IT-related services from other economies. Growth of IT parks in India and specialization of skills are only going to fuel employment generation within this sector. Tax breaks and lower operating costs would also result in higher salary projections. Skills that will be in demand would be Big Data/SMAC and key software skills such as Python and SharePoint.
Salary increase in professional services sector will rise from 8 per cent to 10.9 per cent. All the other sectors including energy, FMCG, financial services, media and retail will remain stable, with the exception of a few critical skill levels, which will exceed the average.
The upcoming Union Budget is expected to rake up the hiring scenario and sectors that come under ‘Make in India’ are likely to benefit. Automobile, automobile components, aviation, construction, mining, oil & gas, IT & BPO, biotech, defence and pharmaceuticals are also expected to benefit. The government has a sharp focus on developing these sectors under the campaign and hence is expected to announce reforms and new policies to boost investments in these sectors, which in turn will boost existing and new projects, hence pushing up hiring activity.
Apart from infrastructure, the government’s Budget announcements for education, finance, real estate and insurance should create more job opportunities in these sectors.
The challenge for companies is to keep employees engaged and the turnover down. Towers Watson research reveals that, whatever people say, salary is the number one driver for attracting and retaining highly skilled staff, so a fine balance is needed. Having structures in place to help companies win the battle for talented staff is critical, especially for countries like India where the scale of operations can be vast and proximity to the market is so important. For 2016 and beyond, if inflation rates continue to moderate, Indians need to start preparing for a possible mid-to-high single-digit salary increase.