With positive business sentiment gradually growing within India Inc after a tough Covid-19 pandemic hit 2020, salary increment is being projected to grow from actual average 6.1 per cent last year to a projected average of 7.7 per cent in 2021.
Findings in the latest Salary Increase Survey in India by global professional services firm Aon plc shows that more companies plan to give increments, with 88 per cent expressing the desire in 2021 as compared to 75 per cent companies in 2020. The study analysed data across 1,200 companies from more than 20 industries.
"There is a sharp reduction in 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.
Organisations expecting an improved business outlook (93.5 per cent) bullish on increments numbers, while even the organisations projecting a decline (6.5 per cent) work towards retaining talent by offering close to market average increases. The projected average 7.7 per cent salary increment in 2021 is higher than 6.1 per cent actual increment in 2020 but lower than 9.3 per cent recorded in 2019.
Sharp reduction in 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).
In 2021, highest number of companies (34.8 per cent) are set to offer 8-10 per cent increment, followed by 30.6 per cent offering 5-8 per cent hike, up from 27.4 per cent and 20.4 per cent in 2020, respectively.
Sector-wise, top performing ones like e-commerce and venture capital-backed, hi-tech and information technology (IT) are set to lead increments with 10.1 per cent and 9.7 per cent hikes in 2021, followed by ITeS and pharma at 8.8 per cent and 8 per cent, respectively.
However, Chaudhary added that even the stressed sectors like real estate (RE), infrastructure and hospitality that saw around 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 belong to sectors like telecom and engineering services (5.8 per cent), RE and infrastructure (5.6 per cent), and hospitality (5.5 per cent).
Commenting on the survey, partner and CEO of Aon’s performance and rewards business in India Nitin Sethi said that the increment dynamics for 2021 are 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 organizations 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 organizations 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 last increment cycle include strong expected company performance and competitive talent pressure, apart from pay freeze implemented in FY 2020-21 being revoked, among other things. 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.
The survey also found that organisations also turned more socialistic by putting up a fine balancing act of rewarding the top performers and reducing the below expectation population size, with a 1.6x and 1.3x rise in 'far exceeded expecations' and 'often exceeded expectations' performance ratings.