Salaries of employees may rise 11% next year

Indian companies are projected to reward employees with an average pay hike of 10.9% next year, a survey has found, marking the return of double-digit salary increases and optimism about the future.

The survey by HR consulting firm Mercer also shows that companies are restarting hiring after a year which saw most them trim workforce levels to cut costs and compete in the worst global recession since the Great Depression in the 1930s.

Industry estimates show that in 2008, salaries rose by an average 8-9%. In 2007 and by about 13% in 2007. Indian companies are expected to give salary hikes at an average of 8% this year, according to Mercer.

India’s economy grew by 6.7% in 2008-09 after three years of expanding by about 9%. The Planning Commission expects GDP to expand by 6.3% in the fiscal to March 2010.

The first in a series of quarterly surveys, Mercer covered 93 companies, one-fourth of them from the IT & telecom sectors, 16% from the pharma industry and 14% from the consumer segment.

Employees in the automobile, pharma and consumer products sectors can expected pay hikes of 12% while those in IT & telecom and financial services are likely to see their salaries rise by an average 10-11% in 2010. This year, these sectors had rewarded staff with pay hikes ranging from 5% to 9%.

“The IT sector is showing improved sentiment with salary increases expected to leap by a few percentage points next year after a long-lasting lull of near 0% increase this year,” said Gangapriya Chakraverti, Mercer India’s leader for the information product solutions business.

Companies in the automobile and auto parts sector are expected to offer a 12% salary increase next year and end the current year with an average 9% pay hike. The sector has been on an upswing with robust demand from the domestic market.

One in two companies indicated an intent to hire to add to the headcount in the next three months. Only 2% said they were looking to cut workforce levels and the rest expected no change in their headcount by the end of 2009.

“Most companies presented a more optimistic picture on workforce and compensation, with 50% of our respondents expected to hire in the next three months either to add headcount or to replace for attrition so far,” said Ms Chakraverti.

Voluntary attrition rates in the last quarter have seen a decline, with average attrition being 7.8% across the industry. Sectors such as energy & IT, which have traditionally faced very high employee turnover, experienced a significant reduction in attrition percentages.

Over half of the companies indicated that they cut their workforce in the past 12 months, with the IT sector the worst hit — almost every company in the sector cut manpower.

While some companies reduced headcount to cut costs, others did so to restructure people and processes to be better prepared for the future.

“Yet, the need to attract and engage the right employees is as strong as ever. A new balanced approach to total rewards — one that appreciates the needs of both the business and its employees — is much needed, challenging as it may be,” Ms Chakraverti observed.

Companies have been focusing on linking employee remuneration during the slowdown to their performance, but not many changed the ratio of fixed and variable pay components during the year.

Most companies indicated that they strengthened their performance appraisal systems in the recent past by either increased communication with employees or aggressive performance differentiation. Individual performance, coupled with company performance, was the most commonly used criterion for determining performance bonus. About 92% of the respondents gave out performance-related bonuses annually, while the rest opted for half-yearly, quarterly or monthly payouts.

Nine in ten companies review salaries once every year with April being the most prevalent salary review month, followed by January and July. Majority of the companies in India do not have a formal mid-term review policy but many deferred the review process by at least a quarter or more in 2009.

As a result, many companies gave increments in July and the rest are expected to give a salary hike this month. For instance, IT major Infosys opted to kick off its appraisal process in October this year, after witnessing two quarters of good results. It usually followed a cycle that began in April every year.