Industry
9-10% hikes may not help beat inflation
Summary
- Companies are, however, striving to offer tax-saving benefits to employees
At a time of rising costs, will a 9-10% salary hike help much? Perhaps not, cautioned consultants working on compensation across sectors. However, companies are striving to offer tax-saving benefits and reimbursements to help increase cash-in-hand for employees and help them make the best of increased salary packages.
“We have always maintained that inflation, as it relates to compensation increases, is somewhat subjective. RBI’s (Reserve Bank of India’s) household inflation expectations survey shows a range of 9-9.9% in the next three months to one year. So, in the hands of the recipient, a 9% increase will be ‘felt’ as no or little real increase," said Anandorup Ghose, a partner at Deloitte India.
Mint had reported earlier after speaking with several consultants including Aon, Mercer and Willis Towers Watson (WTW) that Indian companies are likely to offer median increments of 9-10% this time, with macroeconomic pressures pushing companies to be more prudent. In fiscal year 2023 (FY23), the median remuneration had risen 9.5% on average, the highest since FY20 (9.7%), a Mint analysis of Sensex companies showed.
However, in 2019-20 (before covid), the average annual inflation was far lower, at 4.8%. In FY23, it was at 6.7%, blunting salary increases. So far in FY24, inflation has softened to 5.4%. “Mostly, salary hikes are subdued when the organization’s or sector’s performance is not good, or the outlook is not great. In both situations, organizations tend to be conservative," said Rajul Mathur, consulting leader (India) and work and reward and growth leader (international), WTW.
The manufacturing, engineering, retail and pharma industries could provide marginally higher salary hikes, while information technology (IT) employees could bear the brunt of reduced budgets, Mint reported earlier, citing data from Aon. While engineering companies might roll out a 10% average hike in 2024 compared to 10.5% in 2023, the energy sector may see an 8.8% rise in 2024 versus 8.5% this year, Aon’s early data analysis showed. Salary hikes for fast-moving consumer goods, chemicals and retail are likely to be at 9.8%, 9.6% and 10.1%, respectively, which are par compared to 2023’s increments of 9.7%, 9.6% and 10.1%.
Mathur of WTW said salary hikes are a function of an individual’s performance and potential, the organization’s performance and plan and the impact of market forces. “Besides, 9-10% is a median range. High-performing employees may get higher increments of 12-15%," he said.
As per Mercer, companies will adjust flexible benefits, focusing on retaining top performers by offering 140-160% increases in variable bonuses. Access to broader medical insurance coverage, fuel reimbursement and car lease policies will be enhanced.
“Companies are looking at flexible benefits as the description of a family changes in workforces. Post-covid, companies rolled out multiple hikes making corrections during the hiring frenzy. So, a 9% hike in 2024 will be significant," Mansee Singhal, partner, rewards consulting leader, Mercer India, said.
