Article: Remuneration realities: Top 2017 trends

Performance Management

Remuneration realities: Top 2017 trends

India Inc. is seeing a gradual slowing of pay increases and a shift towards productivity-based pay.
Remuneration realities: Top 2017 trends

Actual salary increases last year stood at 10%, and this year the percent increase is estimated to be between 9.5- 10% as per two separate reports. 

A slowdown in salary increases in India may soon be a jarring reality, say leading experts.  A relook at the above predictions, while taking into account inflation at 5.7%  reveals that the real term remuneration increase for 2017 stands at a mere 4.3 %. This downtrend is in line with a muted business outlook. In a recent Aon survey, 67.5% of respondents proposed an improvement in business outlook for 2017, while 25.6% thought that it would remain “stable”. 6.9% feared a decline. Another interesting development is a stark shift in organizational strategy. Today, organizations are placing higher importance on productivity and performance, making each buck given out worth its while. And remuneration realities of 2017 reflect this changing perspective. 

This gradual slowdown of pay increases is in line with a cautious economic and business outlook. Political changes at a global level and ambiguity in economic models brought about by occurrences such as Brexit and demonetization have directly impacted business forecasts. It is not a surprise, that companies are taking the cautious approach in the wake of uncertainty.  

A “cautiously optimistic” business outlook is the flavour for 2017.  

Insights by Sector

While overall increases have dipped across industries, some sectors may uphold better increments this year. Consumer internet services is expected to lead the increment game by doling out 12.4% salary increases. Next in line is Life Sciences (11.3%) and Professional Services (10.9%). Chemicals, Entertainment & Media, Automotives, Consumer Products, Engineering Manufacturing, ITeS, and Hi-Tech were above the overall 9.5% growth mark estimated by Aon. The lowest pay rises may be seen in Cement (7.6%), Transport & Logistics (8%) and Financial Institutions (8.1%). These trends indicate a higher value being placed on new-age and service-oriented industries. 

 

Source: Aon Hewitt 21st Annual Salary Increase Survey, 2016-17

Insights by Employee Level

An analysis of the remuneration split by employee grades gives us a fair idea of where the talent focus truly lies. Interestingly, as per the Aon survey, the salary increase being offered to Top and Senior management is lesser than 2016 actuals. Actual increases for top management in 2016 stood at 9.3% whereas for 2017 it is predicted to be a mere 8.9% jump. For middle management, these numbers stood at 10.2% and 9.8% respectively. A similar dip was seen for Junior Management, Clerical/Tech/Admin as well as Manual workforce. These numbers highlight that it is not one particular segment that will face the flak of a bleak outlook. 

 

Source: Aon Hewitt 21st Annual Salary Increase Survey, 2016-17

Changing Productivity Focus

Companies today are very particular about how they give out remuneration raises and who they reward for what. Linking performance to rewards is a strategy that is gaining importance more than ever before. A high-productivity, high-performance intent means more stringent performance rating methods, and more differentiation between employees. This is aptly indicated by Aon reported numbers- above 60% of the population was in the bracket of “Meets expectations and below”, a significant chunk. Clearly, the gap between high performers and average performers is increasing and the bell curve is becoming steeper, with company remuneration philosophies stretching the gap. In the period between 2010-2013, 10.1% of the population stood in the “Far Exceeding Expectations” category, this percentage has reduced to just 7.9% for the period 2014-16. Moreover, companies are actively communicating these contemporary pay preferences to make employees realize, the new performance realities. 

Salary increase predictions for 2017 are pegged at 9.5% (Aon Hewitt) and 10% (Towers Watson). 

Changing Pay Mix

We are seeing a drastic change in the pay mix, it is tilting more towards high-risk-high-return models. Increased cost consciousness and a deliberate attempt to invest where it truly adds value is forcing a shift away from annual base salary increases. “Pay for Risk” is the new remuneration regime, across employee levels. At the senior management level, “Pay at Risk” translates to highly disproportional variable pay and Long Term Incentives whereas for middle management and below, it manifests through greater variable pay. The remuneration philosophy of the future will target better alignment of individual objectives with overall organizational objectives. We see that a greater percentage of employee pay is being linked to overall company performance, through variable pay. For top management, this may be around 25% of the remuneration package, for the lowest hierarchy of management, it is still estimated to be a significant 12%. 

In conclusion

The message is loud and clear, a favoured stance for the high performer is the remuneration reality for the coming year. Differentiation and individual-organizational linkage will be the paradigms on which remuneration for 2017 will be based. Organizations must make sure to communicate the changes and rationale for the same in a transparent manner so as to gain employee trust. Even if it may mean lower salary increases for employees, openness and transparency in remuneration delivery is appreciated by employees. It elicits loyalty, trust and care on the employer, which will enable organizations to tide through a volatile business environment. 

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Topics: Performance Management, Compensation & Benefits

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