Salary hikes to be lowest in three years. But it’s not all bad

Mumbai: Annual appraisals may fetch an average pay hike of 9.5% this year while top performers stand to win 1.74 times more, a survey of employers found, in an indication of companies going the extra mile to retain top talent.

This will also be the lowest pay hike since 2021, when the average increase was 9.3%. Last year, companies had given an average hike of 9.7%, the survey by consulting firm Aon showed. Even though pay hikes may be on similar lines as last year, it may make a bigger difference this year, Aon said, pointing to the decline in inflation. The real wage growth (salary increase minus inflation) this year will be 4.9%, against last year’s 4.2%, it said.

“In 2023, organizations navigated a challenging environment, balancing a generous average salary increment amid high attrition rates. As leaders prepare for 2024, their focus is likely to shift towards building a supportive work environment to foster employee engagement in a dynamic job market,” said Jang Bahadur Singh, Aon’s director for Talent Solutions. Aon surveyed 1,414 companies from almost 45 industries for its study titled Annual Salary Increase and Turnover Survey 2023-24, India.

Aon’s is the year’s first survey on compensation, usually followed by similar studies from Deloitte and Mercer.

While the Indian economy clocked surprising growth of 7.6% in the second quarter, prompting the government and the central bank to increase their projections for the year, interest rates remain high, and many companies in the startup and tech sectors have had to reduce headcount and pause hiring as a funding winter dragged on.

Pay hikes at nearly the same levels as last year come in the backdrop of global economic sluggishness and a tempering of hiring sentiments in the private sector. However, easing inflationary pressures will lead to more cash in the employee’s pockets after the hikes, Aon said.

Non-bank lenders may be the most generous with pay hikes this year, handing out an average 11.1% raise. This is followed by manufacturing companies with 10.1%, life sciences and financial institutions (9.9%), and global capability centres (9.8%). E-commerce firms and IT services, which had waged a talent war in 2022, are expected to roll out hikes of 9.2% and 8.2%, respectively.

According to the founder of an education-based fintech and NBFC (non-banking finance company), getting good product managers and compliance experts is hard. “If we have to recruit a mid-level product manager who was earning ₹30 lakh, we will offer ₹60 lakh at least,” the founder said.

Private lenders are also facing challenges in retaining talent. The human resources chief of one of the three largest private banks commented that employee costs are so high that his bank is forced to reduce campus hiring and focus on in house-talent.

Despite the macro-economic headwinds, many companies are betting on domestic demand and those that are little exposed to the US and Europe are faring better. In February, the Reserve Bank of India’s (RBI’s) monetary policy committee (MPC) kept the benchmark interest rate unchanged for the sixth straight time, citing persistent risks from food inflation and incomplete transmission of monetary policy. RBI governor Shaktikanta Das highlighted that the “last mile of disinflation” towards the 4% inflation target is the most challenging, signalling that rate cuts may not be imminent.

“The projected increase in salaries in the Indian formal sector indicates a strategic adjustment in response to the evolving economic landscape. Despite a conservative global sentiment, industries such as infrastructure and manufacturing continue to project robust growth, indicating the need for targeted investments in certain sectors,” said Roopank Chaudhary, partner and chief commercial officer for Talent Solutions at Aon in India.

In retail, where employee performance is more accurately measured given the target-oriented profiles, high performers can earn pay hikes that are 2.01x of their regular counterparts. At professional services, the corresponding figure is 1.78x.

“We rolled out 10% average hike last year and our top performers got 1.5x-1.7x more. This year, hikes are in a similar range, while we will offer better raises to high performers in technical and special roles in mining and those in digital skills,” said Praveen Purohit, deputy chief human resources officer, Vedanta Group.

Aon data showed that overall attrition fell from 21.4% in 2022 to 18.7% in 2023, as the hiring frenzy of the pandemic years was followed by a freeze. According to the consultant, external inequity in compensation; limited growth opportunities; and personal reasons which could include location, need for more flexibility, role stagnation are among the top four reasons to exit a firm. Issues with the manager and internal pay parity struggles are two other important factors that have become more critical over the last three years, as employees turn more vocal about their personal well-being.