Political and economic changes will have an impact on the salary increase for the year 2017. According to Aon Hewitt Annual Salary Increase Survey in India, the projected increase for the year 2017 is at 9.5% across industries, marginal drop from 10.3% in 2016. 

The study, the largest and the most comprehensive of its kind in India, analysed data across 1000+ companies.

Source: Aon Hewitt

While it’s a marginal decrease from the 2016 spend, it reflects maturity that India Inc. has displayed amidst global and Indian economic and political events. This includes, and is not limited to Brexit, recent changes in the US government and the much talked about demonetization.

India Inc. has approached the ambiguity caused by these events with confidence and has displayed maturity instead of impulsive decision making.

Anandorup Ghose, Partner at Aon Hewitt India, commented: “Political changes and economic headwinds have had an impact on business performance. However, the trend this year reflects a gradual slowing of pay increases and higher emphasis on productivity and performance – quite literally a ‘graying’ of salary budgets for India”

It is noteworthy that sectors such as Life Sciences, Professional Services, Chemicals, Entertainment Media, Automotive and Consumer Products continue to project a double-digit salary increase for 2017. However they have taken a drop from their 2016 actual spends.

While traditionally pay increases in India have not been affected by inflation rates, the significant drop in Consumer Price Index (CPI) over the last few quarters has also been a good opportunity for companies to manage their compensation budgets.

Increasing Focus on Talent and Merit

With tighter budgets, it has become imperative for firms to ensure that their ‘top talent’ is identified and remunerated accordingly. Research shows that the segment of population that features as ‘high performers’ have fallen to 7.5%, the lowest number recorded in the 21 years of the Salary Increase Survey in India. Consequently, the multiplier that India Inc. is offering these employees continues to be high. At 1.8 times, India is one of the highest differentiators across Asia.

The trend of investing in key talent continues. Firms are carving out high potential and hot skills along with high performers as their key talent segment. 

Ghose said, “Last year has shown organizations take a strong view towards performance differentiation and not only have bell curves become sharper, the pay differentiation between top and average performers has also increased”

Attrition rate at its lowest for five years

The attrition rate in India was similar to 2015 at 16.4%. While attrition was contained at a broader level, key talent attrition increased from 7.3% in 2015 to 12.3% in 2016. While inequity of pay remains a concern, the key reasons cited by employees for voluntary attrition are role stagnation and limited growth opportunities.