Covid effect on salaries: Just 40% firms gave hikes, increments down to 3.6%

BENGALURU: A mere 9% of companies have given their teams salary increments of 10% or more this year, the effect of a slowing economy and covid-19. The average hike across sectors has come down to 3.6%, an all-time low. In 2019, close to 90% of companies gave increments of about 8.6%.

These are some of the findings of the 2020 Workforce and Increment Trends survey conducted by Deloitte Touche Tohmatsu India. Around 350 organizations participated in the survey, which spanned seven sectors and 25 sub sectors.

Life sciences and ITeS were among the sectors that gave their employees higher raises, but here too the average increment is about 7%. Companies in manufacturing and services sectors, which have been badly affected by the lockdown, announced the lowest increments of about 2%.

Since 2018, the overall salary increase rate has also dropped. Nine of 10 companies expect to maintain the long-term salary escalation rate or reduce it. For instance, in the services sciences sector, the salary escalation has dropped from 8.3% in 2018 to 6.7% in 2020. One of the reasons for this is the high inflation rate of 3.5-4%, which makes it hard to justify the 10% increments given in earlier years. "While companies were in the process of cutting increments, covid-19 accelerated the pace," said Anandorup Ghose, partner at Deloitte Touche Tohamtsu India.

Close to 90% of the companies surveyed said they were considering a review of pay plans in favour of higher variable pay components. “That’s a huge shift,” said Ghose. Before the lockdown, increment decisions were largely based on the previous year’s performance. “Now, organisations are taking into account the likely future performance while deciding increment budgets,” he said.

Life sciences was among the sectors that gave the highest increments this year. About 64% of life sciences companies gave an average increment of 7.3%. This was followed by ITeS, where 59% organisations gave raises of about 7.1%. Companies in manufacturing and services sectors announced the lowest increments of 2% and 2.4% respectively.

While increments have taken a hit, organizations have not held back on bonuses. Seven in 10 companies paid bonuses as per the previous year’s performance of the employee.

The number of promotions has also declined this year: from 7.5% of employees getting promotions in 2019, this year about 5.4% of staff were elevated. Some organizations are looking to change the review cycle to a quarterly or bi-annual basis.

Other ways in which companies are cutting their expenditure on employees is by suspending leave encashment, slashing budgets for award ceremonies, off-sites and other annual events, moving programmes online, and implementing studies to assess productivity and human resource optimization.

As for the outlook of 2021, one in four companies is considering giving increments, although it might be lower than earlier years. "Overall, we may see increments being very low next year, but certain categories of people, who are key talent or highly skilled talent might get good increments," Ghose said.