India Inc likely to offer average salary increment of 7.7% this year

E-com, venture capital-backed firms to give best raise at 10.1%: Aon survey

With positive sentiment gradually growing in India Inc after a tough, pandemic-hit 2020, the average salary increment is projected to rise to 7.7 per cent in 2021. Last year, it was 6.1 per cent.

According to the findings of the Salary Increase Survey in India by leading global professional services firm Aon plc, 88 per cent companies plan to give increments to their employees, as against 75 per cent firms in 2020. The study analysed the data of 1,200 companies across more than 20 industries.

“There is a sharp reduction in the number of companies going for a zero increment, down from 25.4 per cent in 2020 (actual) to 12.2 per cent in 2021 (projected). This shows that business sentiment is on track and companies are having a more mature outlook,” said Roopank Chaudhary, partner in Aon’s human capital business in India. 

While organisations expecting improved business (93.5 per cent) are bullish on increments, even those projecting a decline (6.5 per cent) are working towards retaining talent by offering hikes close to market average. 

The projected average increment of 7.7 per cent in 2021 is higher than the actual raise of 6.1 per cent in 2020, but is lower than the 9.3 per cent recorded in 2019.

In 2021, 34.8 per cent companies are set to offer an 8-10 per cent increment; 30.6 per cent may give a 5-8 per cent hike — up from 27.4 per cent and 20.4 per cent, respectively, in 2020. 

Sector-wise, e-commerce and venture capital-backed firms may offer the best increment at 10.1 per cent, while hi-tech and information technology (IT) companies may give the average hike of 9.7 per cent. ITeS and pharma firms could give 8.8 per cent and 8 per cent hikes, respectively. 

Chaudhary, however, added that even stressed sectors like real estate, infrastructure and hospitality, which saw 1-2 per cent or zero increment in 2020, are projected to offer 5-6 per cent increments, even if on the lower band. The lowest projected increment in 2021 belongs to sectors like telecom and engineering services (5.8 per cent).

Commenting on the survey, Nitin Sethi, partner and CEO of Aon’s performance and rewards business in India, said the increment dynamics for 2021 were expected to play out over a longer period of time, given the uncertainty and potential impact of forthcoming changes. 

"The proposed definition of wages under the new Labor Codes could lead to additional compensation budgeting in the form of higher provisioning for benefit plans like gratuity, leave encashment and provident fund. We expect organisations to review their compensation budgets in the second half of the year once the exact financial impact of the Labor Codes is known. It is also possible that some of the salary increments may not translate into higher cash-in-hand for employees if organisations choose to pay higher provident fund contributions on the new definition of wages," said Sethi.

Reasons cited by companies for higher budgets in 2021 compared to the last increment cycle include strong expected company performance and competitive talent pressure, apart from pay freeze implemented in FY 2020-21 being revoked. In terms of levels of management, the highest increment is likely to go for junior level at 8.1 per cent in 2021, followed by middle and top-cum-senior at 7.8 per cent and 6.7 per cent, respectively.