BANGALORE: Salary increase projections for 2009 in India have dipped to 8.2 percent from an actual increase of 13.3 percent in 2008, but continue to be highest in the Asia Pacific region and among the highest globally.  These findings were revealed in the 13th annual Salary Increase Survey across 480 companies, conducted by Hewitt Associates, a global human resources consulting and outsourcing company. 

According to the company, it is for the first time in six years that India will see single digit salary increases.  Importantly, the data for the survey was collected over December 2008 to January 2009;  and Hewitt expects that the salary increase projections may fall even further in the coming months.

Sandeep Chaudhary, leader of Hewitt’s Performance and Rewards Consulting practice in India, commented:  “The downturn has hit all economies across the globe, and those that had dependant economic ties with the USA are the ones most affected.  Expectedly, salary increase projections have dipped from previous years. 

“In spite of this, the Indian and Chinese economies are continuing to grow at greater than seven percent, and salary increases in these markets will be among the highest in the globe.  In fact, with inflation well below 5.5 percent, an average increase of 8.2 percent can be considered significantly healthy.”

Importantly, amidst global layoffs, less than 16 percent of companies in India are considering retrenchment.  More than 60 percent of companies in India are still hiring, and nine out of every 10 companies are still giving promotions. 

The downturn apart, salary increases had already begun to move downward last year.  As a result of five years of double-digit increases, Indian salaries have moved much closer to pay levels in the rest of the Asia Pacific region.  Hence, the extent of reduction in 2009 projections versus 2008 actuals is higher than in most other countries.  In fact, 16 percent of companies in India have reported salary freezes in 2009.

Most companies are drastically cutting down on luxuries and discretionary expenses such as non-billable travel and entertainment, with a greater focus on prudence and productivity.  Chaudhary added:  “The intent is to avoid layoffs to the extent possible by limiting other spends.  India is a strong bet for most global companies, as a growing market as well as a source for highly competent talent that is still more cost efficient than in the West.  Moreover, layoffs are a highly sensitive and politicised issue in many markets, including India.”

Salary increase projections dip across employee levels

According to the Hewitt report, almost all employee levels have been impacted equally by the reduction in salary increase budgets but there is some marginal respite for general staff and the manual workforce.  Interestingly, employees at the junior manager, professional, and supervisor levels are expected to receive the highest increase for the 9th year in succession.

 
Pharma industry tops with highest salary increases

The Indian pharmaceutical sector has been witnessing steady growth over the last few years, both from a domestic market opportunity as well as becoming a centre for clinical research and new drug development.  According to Chaudhary, “Over the last two to three years, the Indian pharma sector has been shedding its traditionally conservative approach and giving high market corrections in order to make its place in a competitive talent market.”

In spite of the economic downturn, sectors that cater directly to consumers, such as FMCG, consumer durables and telecom, have a positive outlook and are projecting among the highest salary increases.  Healthcare is another sector that is doing well globally and in India. In 2008, hospitals had awarded the lowest salary increases but now are in the ‘top 5’ for 2009.

On the other hand, the economic downturn has taken its toll on salary increases for the retail, IT, and banking, financial services and insurance (BFSI) sectors.  Retail and IT already experienced a downward trend over the last few years, and the curve is expected to dip even more sharply this year.

The entertainment, communications, and publishing industries, which are directly dependent upon other industries for advertising revenue, are witnessing sharp reductions in salary increases.  The downturn has led to a significant reduction in the construction and steel sector, with prices falling by almost 40 percent in the last six months.  Expectedly, salary increases in the metals sector too have taken a big hit.

The Hewitt study reveals that organisations will drastically increase their focus on improving productivity.

 “With almost 40 percent of companies reporting redeployment of human resources, large scale realignment and changes to the organisation structure may be expected,” said Chaudhary.  “Investments in talent will continue and organisations are concentrating on up-skilling employees.  However, this is also a time for financial prudence - the next company offsite is more likely to be ’on-site’.  Trainees and new joiners can expect longer probation periods, with lower salaries.  There may also be cutbacks in intern stipends or even no stipends, though companies will continue to provide opportunities for such assignments.”

Performance will play a very important role as there is a stricter identification of top and bottom performers.  In the last year, there was a significant drop in the number of employees rated as ‘outstanding’ and ‘above average’, while the number of those rated as ‘below average’ has increased. 

With smaller budgets for salary increases, companies are focusing on keeping their high performers motivated with relatively high salary increases, while those with lower performance will get a smaller share of the pie.

In line with the need to increase productivity and differentiate on the basis of performance, more companies are expected to introduce performance-based incentive plans.  In companies where such plans already exist, there may be measures to increase the ratio of fixed to variable pay, in favour of the latter.  It is important to note that the extent of payouts in such variable pay plans will depend both on the employee’s performance and more critically, on the company’s performance.  In fact, given the economic downturn, over 90 percent of organisations are projecting a reduction in the bonus payouts as a result of business performance falling below expectations.

What can employees expect?

 “This is a time for employees to be realistic and to support their companies,” Chaudhary said. 

Global companies are struggling internationally and taking strong measures in terms of pay cuts and layoffs.  In India, the aim is to protect jobs and improve productivity.

Hence, employees can certainly expect lower salary increases (and in some cases, no increases), realignment of teams, and cut-backs in sops.  But, as Chaudhary added, “Markets will improve eventually and employees displaying solidarity with their companies are the ones who will benefit most.  This may not be the best time to change jobs, and if your performance ahas been an issue in the past, you probably need to make immediate improvements.”

What should employers do?

According to Chaudhary, one of the greatest challenges for a company during a financial crisis is in retaining and motivating its workforce, particularly the top performers.

The two most critical areas for companies to focus on are leadership and communication. 

Chaudhary added:  “The role of leadership will become even more important in the economic downturn as employees are looking to their leaders to provide a clear direction and mobilise the workforce.  Leaders need to be able to communicate the reality of the business — however tough it may be — but also recapture employees’ hearts and minds to take action.”