It Pays to Perform

2017 reconfirms the hypothesis that Indian corporates are maturing in their outlook towards their rewards strategy. Unlike previous decades, where salary increases were around 1.6 times the GDP growth rate, India has started mirroring global standards where salary increases are 1.2 to 1.4 times the GDP growth rate. In the last two decades, India has gone through series of phases. First phase of 2007-11, except for an aberration in 2009 when financial crisis happened, average pay increase in India was at 13.1%. The next phase of 2012-16 saw an average pay increase coming down to 10.3%. Now what we see is the single-digit era where India Inc. is departing from the double-digit increments and projected an average salary increase of 9.4% in 2018. Therefore, there is a fundamental shift in pay increases and India will not see double-digit salary increases anytime in the near future.

As per the 22nd Aon Salary Increase Survey, companies in India gave an average pay increase of 9.3% during 2017 marking a departure from the double-digit increments given by organizations since the inception of this study. The projections for 2018 are also expected to be similar at 9.4% highlighting the increasing prudence and maturity being displayed by companies while finalizing pay budgets.

The focus on performance is getting sharper year-on year. A top performer is getting an average salary increase of 15.4% as compared to 8.3% for an average performer (1.9X). Moreover, the percentage of employees awarded the highest rating comes further down to 7% while the population at the bottom two ratings has increased to 14.2%. As per Aon's 22nd Salary Increase Survey, over the last five years, pay for top performers has increased by 34% more than the average performer which clearly shows that it “Pays to Perform” in India.

Sectors such as Professional Services, Consumer Internet Companies, Life Sciences, Automotive and Consumer Products continue to project a double-digit salary increase for 2018. Consumer Internet Companies however, over the past three years have seen a significant drop of 250 basis points, from 12.9% to 10.4% projected

for 2018. Interestingly enough, the IT sector (including third-party IT services, IT captives/consulting, and IT product) which has gone through a spat of upheavals in the recent times, is projecting an average hike of 9.5% in 2018, whereas the third-party IT services which provide majority of the employment in India are projecting an average hike of 6.2%.

Over the years, with increasing pressure on compensation budgets, there is an emerging focus on rationalization of budgets. Companies are increasingly taking into account the base effect i.e., pay increases for top & senior management which is consistently going down. At this level, pay increases should be driven more through incentives and bonuses.

The attrition rate in India is seeing a continuous downward trend as the overall attrition has come down from 18.5% in 2013 to 15.9% in 2017. Over the years, the hiring dynamics in the country has witnessed a shift as demand for specific talent or skill sets has become more pronounced. Thus, as companies look at hiring only where skill-gaps exist, the job market is becoming tighter and we see incremental hiring and voluntary attrition going down.

Given the broad economic context in the country

and a strong focus on financial prudence; companies are taking far more cautious approach towards pay increases. HR processes have evolved, which is helping organizations focus on a dedicated rewards strategy for their top and critical talent.

Yagesh Singhania
Performance, Rewards & Organization

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