Don’t expect a big hike this year

It's the time of the year when employees are eagerly waiting for their annual appraisals and hikes. Unfortunately, they might be disappointed again this year. A new survey says that the average salary increase in 2018 will be 9.4%.

It's a minuscule increase over 2017, when average hikes were 9.3%, as per the Aon India’s Salary Increase survey.

Companies in India were giving out salary increases in high double digits between 2007 and 2011. The hikes fell to low double digits between 2012 and 2016. For the last two years, this has further fallen to single digits.

"Despite an improvement in macro-economic forecasts - salary increases remain at the same level as was projected in the last fiscal," said Anandorup Ghose, partner at Aon India Consulting.

The Economic Survey, released in January this year, predicted the economy to clock 7-7.5 per cent growth in 2018-19, up from 6.75 per cent in the current fiscal.

The focus on performance is getting sharper year-on-year, the survey finds, with a top performer getting an average salary increase of 15.4%, approximately 1.9 times the pay increase of an average performer.

This means companies are happy to pay more and retain critical talent, as opposed to any average employee. But in India inadequate skill levels and the dearth of critical talent pool has been one of the reasons for jobless growth despite the economy achieving high growth rates.

“Pay increases are becoming more nuanced. We are increasingly seeing a multitude of factors impacting salary increases such as size of the company, business dynamics within the sub industry, nature of talent requirements and quite obviously, performance,” Ghose added.

The human resources consulting firm says that over the years, companies have been facing increasing pressure on rationalising compensation budgets. Also, the need for cost prudence in the wake of ongoing economic uncertainty comes across as the single most critical factor for rationalizing of salary budgets. Organizations are increasingly taking into account the performance and salary budgets of key competitors to determine their own budgets, Aon Hewitt says.

The professional services sector will this year lead with double digit salary hikes followed by consumer internet companies, life sciences and consumer products, as per the survey. Interestingly, the survey also finds that consumer internet companies, over the past 3 years have seen a significant drop of 250 basis points, from 12.9% to 10.4%, projected for 2018. "The Hi Tech/ Information Technology sector is projecting an average hike of 9.5% in 2018, whereas the third party IT services are projecting an average hike of 6.2%," the survey notes.

The attrition rate in India is also seeing a continuous decline with overall attrition having come down from average of 20% percent in the previous decade to 15.7% in 2017. Incidentally, Ghose says, that voluntary attrition is coming down while involuntary attrition has gone up.