Indian companies likely to offer lowest salary hike since recession: report

The 2017 appraisal season will see employees getting an average increment of 9.5%—the lowest salary hike since 2009, says the Aon Hewitt report


Almost all sectors, including consumer internet and life sciences firms, have reported a drop in projected pay hike in 2017 compared to the year-ago period.
Almost all sectors, including consumer internet and life sciences firms, have reported a drop in projected pay hike in 2017 compared to the year-ago period.

New Delhi: Indian companies are likely to award the lowest average pay hike in eight years in 2017 as they struggle with global and domestic economic uncertainties, consulting firm Aon Hewitt said in a forecast released on Wednesday.

The coming appraisal season will see employees getting an average increment of 9.5%, the lowest since they received a raise of 6.6% in 2009, in the aftermath of the global financial crisis sparked by the collapse of Lehman Brothers Holdings Inc., Aon Hewitt said.

In 2016, Indian firms offered an average 10.2% hike, just short of the 10.3% estimated by Aon.

The India Salary Increase Survey by Aon Hewitt is often seen as an indicator of the coming performance appraisal season for white-collar employees, both in the services and manufacturing sectors.

Three events from last year will have a bearing on the 2017 appraisal season: Britain’s referendum vote to exit the European Union, the election of Donald Trump as US President and consequent concerns of the world’s largest economy erecting protectionist walls, and the Indian government’s decision to invalidate high-value banknotes.

To be sure, the top performers will be rewarded with a pay hike nearly 1.8 times larger than the average increment, according to the Aon Hewitt survey. The number of top performers is declining. While 39.5% of employees were branded key to companies in 2004-2009, the proportion slid to 31.1% in 2014-16.

Almost all sectors—from consumer Internet to life sciences—have reported a drop in the pay hike they will offer in 2017, compared with last year. The only exception is the metals sector, which is expected to improve on the increment its employees received in 2016.

“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,” said Anandorup Ghose, partner at Aon Hewitt India.

“Will India stop seeing pay increases in double digits is the question of the hour,” he added.

Among sectors, the consumer Internet segment, including the e-commerce and start-up space, is likely to offer a 12.4% pay hike in 2017, lower than last year’s 15.6%, but still the highest among sectors.

Life sciences firms are expected to hike salaries 11.3%, followed by professional services (10.9%), chemicals (10.3%) and media (10.3%).

Salary growth will be the worst in cement (7.6%), transport and logistics (8%) companies and financial institutions (8.1%), the survey said.

With tighter budgets, the survey said, firms are becoming more discerning about key personnel and ensuring their top talent pool is rewarded adequately. In 2016, top performers received an increment that was 1.8 times the average hike.

“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,” said the report, which was based on a survey of 1,000-plus large and medium size companies in India between December and January.

Although Indian employees are likely to get a smaller pay hike this time, the increase is still higher than expected in key Asia-Pacific economies. Chinese firms are expected to offer a 6.9% hike this time against 6.8% last year. Japanese firms may raise pay by 2.4% and Philippine companies by 6%, the survey said.

“Across all these geographies, the inflation adjusted salary increase is 2.5%. In India, it is still about 5.5% to 6%,” Ghose added.

It means your actual salary growth is more than the current inflation rate. In January 2017, retail inflation was 3.17% against 5.69% a year ago, as per government data.

Over the past 15 years, the increase in Indian employees’ annual pay has outpaced that offered other Asian economies. However, the salary increase in India has consistently come down from 10.6% in 2015, to 10.2% in 2016, and now an estimated 9.5% in 2017, Ghose added.

More From Livemint