From correspondents in Delhi, India, 08:16 PM IST

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, commented, "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.

Mr. 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.

1. 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.
2. Scarcity of talent coupled with increasing competition continues to augment salaries in the real estate sector year on year.
3. 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.
4. 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

1. there is an acute talent crunch and hence we see a 1 percent increase in the projected salary increases for 2009.
2. Adversely impacted by the recent rupee-dollar volatility and the slowdown in the global economy, the IT-ITES sector is treading cautiously on salary & rewards.
3. After witnessing huge growth in 2007, the retail sector is seen stabilizing in 2008 with average salary increases at 13.6 percent down from 17.6 percent in 2007. The figures for 2009 could not be reported since their budgeting process for FY09 has not yet completed.

Mr. Chaudhary commented “Organizations need to set new performance agenda and reassess if their compensation strategy is driving organizational and employee performance. Organizations which feel today that “cash” is the name of the game cannot be more wrong on the front. Yes, it is the most perceptible aspect of the employment deal, but not the complete deal in itself. It is important to respond to the real needs of the employees, which invariably are around career opportunities, learning & development etc.”

General Staff and Manual Workforce benefit the most on Salary Increases

1. The average salary increases across levels continues to be led by middle and junior management, however the 2009 projections are a little lower across levels.
2. Interestingly, general staff and manual workforce is witnessing higher salary increases. This directly correlates with the fact that high inflation has impacted this level more than others.

*Source: Hewitt Salary Increase Dipstick Study 2008

Changing compensation management dynamics –

No salary freeze for 2009; Variable pay assumes greater significance in difficult times

When asked how they saw compensation management in their organizations change in 2008 vis-a-vis 2007,

1. 42 percent of companies said that they would have lower salary increases, bringing in a greater correlation between performance and pay
2. 28 percent of companies stated that they would have lesser hiring
3. 28 percent expected no change
4. None of the organizations surveyed are expecting a salary freeze for 2009
5. 30 percent of the companies surveyed said they have increased performance linkage to counter fixed pay increases. This was led by Pharma (50 percent), FMCG (43 percent) and BFSI (40 percent)
6. Variable bonus as a percentage of annual salary has gone up consistently across levels
7. Fixed pay for General Staff and Manual Workforce has increased, with variable pay at these levels dropping from 14.2 percent and 12 .2 percent in 2007 to 11.9 percent and 10.9 percent in 2008 respectively. This indicates that companies are trying to help their junior employees cope with the pressures of the rising cost of living.

Mr. Chaudhary commented “The job market has slowed down considerably across sectors, and the irrational salary offers being given to hire talent in the past will now be restricted to a much smaller population. Companies should focus on grooming internal talent and build from within to manage their future talent needs.”

1. Average attrition for 2009 YTD across industries is at 15.4 percent which is a marked drop from the average attrition for 2008 at 19.4 percent.

2. Attrition has reduced across industries with traditionally high employee turnover sectors like ITES, Retail and Telecom seeing marked drops.

3. Junior Management, Middle Management and General Staff continue to lead attrition across levels of management, although the quantum has reduced significantly across all levels. The maximum drops are seen at Top Executives, Senior Management and Manual Workforce.

“India is currently mirroring the Global macroeconomic scenario, however, India’s domestic consumption story remains intact. While salary increases in India have been between 14 – 15% since 2004, a slightly lowered projection is not a sign of worry. This is a good time for organizations to consolidate their HR strategies towards a high performance orientation and also look at removing redundancies from their organization structures.” says Mr. Chaudhary.

About Hewitt's Salary Increase Survey

Hewitt surveyed 150 leading Indian companies foreign-owned, locally-owned, and joint-venture companies this year, analyzing information across 9 primary industries. The study measures actual and projected salary increases, and compensation practices for six specific job categories, namely top executive, senior management, middle management, junior manager/professional/ supervisor, general staff, and manual workforce.

Source: Press Release Distribution via India PRwire