A study conducted across 150 leading corporates in India by Hewitt Associates to understand the impact of economic slowdown on compensation and salary trends in India has found that 63 percent of the organizations surveyed said that inflation and rising input costs have been discussed and considered in the context of their salary increase budgets for 2009.

However, the year 2008 has still seen a strong average salary increase of 14.8 percent. The global economic slowdown, US sub-prime crisis and rising inflation have caused Indian companies to revisit budgets for 2009; and the average salary projections for the coming year are lower by a percentage point at 13.9 percent.

Companies are looking to balance the pressures of inflation and lower HR budgets by increasing productivity (57 percent) and redeployment of manpower (31 percent). Meanwhile 30 percent of them stated that they have increased performance linkages to counter fixed pay increases. Only 20 percent of the organizations surveyed mentioned a hiring freeze or slowdown.

Sandeep Chaudhary, leader of Hewitt's Rewards Consulting Practice in India, said, "Contrary to expectations, there hasn’t been any dramatic move to downbeat macro-economic factors on compensation. Instead, companies are looking at innovative ways to cut other costs like travel and recreation without compromising on employee salaries or learning and development. This is a healthy sign of a growing and mature economy. The war for talent is not over and the current blip is transient. Hence organizations realize that they have to manage the talent supply for the long term and not the downturn.”

While 25 percent of the companies surveyed are looking to reduce staff budgets, with cuts largely in the areas of travel and recreation, only 9 percent of the companies mentioned a reduction in training budgets. Also, only 1 percent of the companies are looking at increasing work hours to manage rising costs of business while 4 percent of the organizations mentioned a promotion freeze, all being from the IT , ITES and BFSI sectors.

Chaudhary commented “Business Leaders need to realize that “productivity” can help us tame inflation and seems the only sustainable factor, which we can independently influence. In our burgeoning economy there is a colossal waste of resources, from capital to talent deployment. Organizations would need to take stock and enumerate various ways to improve efficiency and boost productivity.”

Infrastructure and BFSI leading; IT-ITES most affected.

Retaining its top position, Infrastructure sector is leading with 24.1 percent salary increase in 2008, followed by Banking, Financial Services & Insurance (16.5 percent), and Manufacturing (15.4 percent) while ITES, and IT showed a drop against 2007 numbers at 12.6 percent and 12.5 percent respectively.

Projections for 2009 are slightly lower than the increases given in 2008 across sectors, with Telecom being the only sector showing an increase. This is reflective of the cautious approach companies are taking towards salary increases in the current economic environment and the dip is largely in the range of 1 – 2 percentage points. Infrastructure is showing the maximum dip although they are still projecting the highest increases for 2009 at nearly 19 percent.

Scarcity of talent coupled with increasing competition continues to augment salaries in the real estate sector year on year.

While stable BFSI businesses are looking at lower increases, some organizations in the sector are growing their operations given the strong long term potential of the Indian market, and are hence giving higher salary increases. This data could be inflating the overall average for the sector. The salary increase budgets in Banking, Financial Services and Insurance have been set on current projections and could be revised later in the year basis corporate performance.

The Telecom sector is projected to see continued growth in India. With the advent of 5 new players over the last one year,

Source: Hewitt Salary Increase Dipstick Study 2008