BackSalaries to rise 10% in 2014, lowest in 5 years: Aon Hewitt
Slower economic growth and high inflation will lead to a 'plateauing' of salary increases, says Aon Hewitt
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New Delhi: Slower economic growth and high inflation will lead to a “plateauing" of salary increases in private companies this year, consultancy firm Aon Hewitt said in a survey of 565 companies.
According to its forecast, salary increase in 2014 will be the lowest in five years at 10%, compared with 10.2% in 2013.
India’s economy grew 4.8% in the three months ended September 2013, the slowest pace in four years, after expanding 4.5% in the year ended March, slowest annual rate in a decade.
Inflation measured by the consumer price index (CPI) accelerated by 11.2% last year.
But with the Reserve Bank of India (RBI) expecting inflation as measured by CPI to top 9% in three months to 31 March this year, and range between 7.5% and 8.5% in the fiscal year to 31 March 2015, increases in salaries may stay ahead of price rises.
Reflecting the cautious economic mood, 69% of the companies surveyed have reduced their salary projections for 2014 as compared to the actual increases paid out in 2013.
Projections for 2014 have come down by an average of 30 basis points from the actual increases provided in 2013 by these companies. A basis point is a hundredth of a percentage point.
But top-performing workers are expected to receive an average 15.3% increase in 2014, almost 1.5 times the average increment provided to employees meeting their expectations. This gap has been widening over the last decade.
In the last five years, the percentage of employees in the top performance rating has dropped by 30%, implying that organizations are not hesitating to differentiate sharply on the basis of performance and then allocate a disproportionate share of the total increase in budget to top performers.
“The years 2012-14 are witnessing a sort of plateauing in salary increases, as compared with the high double-digit increases in the last decade," said Anandorup Ghose, rewards consulting practice leader at Aon Hewitt India.
Sectors such as consumer goods, automobiles, pharmaceuticals and retail have seen a decline in salary projections for 2014 as compared to last year.
Consumer goods firms are projected to see a salary increase of 10.5% in 2014 as compared to 10.8 % in 2013. While projections for the automobile sector have dropped from 10.1% in 2013 to 9.5%, pharmaceutical firms from 12.5% to 12% and retail from 9% in 2013 to 8.8% in 2014.
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To put things in perspective, developed economies of the US, UK and Japan show salary increases in range of 2.4-3%, continuing the trend of the previous few years. A projected salary increase of 24.9% in Venezuela is the highest across countries, followed by Argentina that is expected to see salaries going up by 24.3%.
The survey does not mention figures for the rest of the BRICS economies—Brazil, Russia, China, South Africa.
With a growing recognition that motivated, high-performing talent is a sustainable competitive advantage, companies are reshaping strategies to safeguard key talents. This is reflected in a lower average attrition for critical talent of 4.5% in 2013, down from 5.7% a year ago.
Korean consumer durable Samsung Electronics India Pvt. Ltd said it is planning to raise salaries in the range of 12-15% for 2014.
“Even if there is pressure on employee cost, you have to retain your employees. Otherwise, attrition would become a problem," said a senior human resource executive at the firm requesting anonymity. The company employs 22,000 people in India, including in manufacturing and research and development.
“The competitive intensity for our sector is much lower so there is not much pressure on employee cost," said Kishor Biyani, group chief executive officer, Future Group, which runs discount stores.
Biyani added that his company was planning to hire 3,000-4,000 people in 2014. The total workers strength of the company stands at 30,000 at present.
“At PepsiCo India, our guiding philosophy for yearly salary increases has always been and continues to be ‘Pay for Performance’ and in line with the market. We have been progressively differentiating on performance and thus the difference in merit increase between the average and top performers has been gradually increasing over the years," said Samik Basu, chief human resources officer at the food and drinks company PepsiCo India. “This year top performers have got twice as much increase vis-à-vis average performers, which is particularly important to retain top talent in challenging times."
Ghose of Hewitt said that with Indian economic sentiment improving, 2015 could be a better year.
“If the next 6-8 months start looking positive for the economy, the situation changes and if there is better confidence, you will surely see 2015 being a better year," he said.
According to Poonam Chopra, survey director of the Hewitt report, the sentiment in 2014 has improved from 3-4 months ago.
“A survey we did a couple of months back and the sentiment that we captured in it was much worse than now. So, there is definitely an improvement in sentiment from what it was a few months back. Yet, the organizations will take a cautious approach in the next few months," Chopra said.
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