The world economy is in a state of flux, owing to the ongoing economic-political uncertainties. The US-China trade war, Brexit uncertainty, and negative sentiments carried forward from the global financial crises have led to global GDP growth rate decelerating in 2019, to an estimated 2.4 percent- the lowest rate of expansion since the global financial crisis. The crises is real, because both advanced as well as emerging markets and developing economies (EMDE) have been affected, with only a few exceptions showing prospective high growth. In 2020, GDP growth is expected to rise slightly, at 2.5 percent (estimated) globally. Advanced economies are set to further decelerate to 1.4 percent from 2019’s 1.6 percent. It is important to note that several EMDEs are expected to make a comeback with a predicted 4.1 percent growth vis-à-vis 3.5 percent(estimated) for 2019.
The India story
India has been reeling under the effect of non-performance of certain sectors, manufacturing and construction being primary culprits. According to the National Statistical Office, the manufacturing sector output growth is expected to decelerate to 2 percent in 2019-20, down from 6.9 percent in 2018. Similarly, the construction sector growth is estimated at 3.2 percent as against 8.7 percent in 2018. Despite this, it continues to be one of the better growth economies, with a projected GDP growth rate of 5.8 percent against the 5 percent (estimate) of the past year. A sense of high optimism prevails, owing to government policy and investor sentiment.
Flashback 2019 and expected salary trends for 2020
Salary increases worldwide are expected to be 4.9 percent in 2020, a decrease from the forecasted 5.1 percent for 2019. But due to inflation falling to merely 2.8 percent (2020) from 4.1 percent (2019), the real wage increase is expected to be just 2.1 percent globally. Asia is expected to contribute to the highest real-wage growth in 2020- salaries are forecast to grow by 5.3 percent in 2020. Real-wage salaries which are inflation-adjusted are expected to be 3.1 percent, up from 2.6 percent last year.
India is likely to see the highest salary growth in Asia at 9.2 percent in 2020 followed by Indonesia at 8.1 percent and China at 6 percent, according to the Korn Ferry Global salary forecast . Adjusted for inflation, real-wage salaries in India are anticipated to be 5 percent. Despite the number not being so positive, India seems to be on the brighter side vis-à-vis Japan (0.6 percent real wage increase) and China (2 percent real wage increase).
Next steps for HR
While the absolute salary-increment predictions may give employees a temporary feel-good factor, inflation-adjusted wage increases tell a different story. Organizations can no longer rely on falling inflation and mere rewards to make employees feel wealthier, and thereby feel engaged. There is a dire need for Total Rewards specialists to make Rewards and Recognition more comprehensive. HR leaders and Rewards leaders must take a broader perspective to attract, engage and retain talent i.e. both candidates and employees. It is good to note that this is the way ahead in Compensation Strategy- from mere Pay to “Total Rewards”- a holistic basket of offerings that meets employees’ needs, wants and aspirations on a professional and personal level. The good news for organizations is that modern employees such as millennials and Gen Z are expecting the same. It is a win-win both ways- organizations that offer perks such as career development programs, contemporary learning avenues, challenging assignments, mobility, challenging assignments, and a great culture have a better chance to hire and sustain top talent. Top leadership can play a critical role here by driving a culture of openness, transparency, coaching and mentoring, and basically “walking the talk”, which is what inspires employees these days. Also, an organization which is progressive in its policies, and incorporates digital and flexible ways of working, is often looked up to, and attracts in-demand talent such as native digitals.
To counter the effects of the changing remuneration landscape, and to make employee engagement a reality, HR leaders must first develop a deep understanding of the core business. They must work closely with the CXO suite and define and agree upon the organization’s own measures of cost drivers and business strategy, in line with the macroeconomic environment and devise a business-aligned talent strategy. HR must step up its business acumen, and talk the business language so as to devise an effective Total Rewards Philosophy and Strategy. Fostering high performance through a well-rewarded and engaged workforce demands this, along with an ongoing commitment to evolve.