India Inc may raise pay by 10.3% this year

Employee turnover of 21.4%, changes in talent strategies, and a demand gap in the supply chain are pushing firms to offer double-digit pay hikes, a study by Aon India showed.

“Rising economic uncertainty and concerns over economic volatility are making salary increase planning especially difficult this year. India Inc. has awarded aggressive salary increases over the last two years, which has some companies grappling with higher wage bills,” Roopank Chaudhary, partner, human capital solutions, India at Aon, said in an interview.

According to the Aon report, about 46% of Indian companies are ready to roll out double-digit hikes. Compared with the projected 10.3% hike in 2023, employees received an actual hike of 10.6% in 2022. The study analysed data across 1,400 companies from more than 40 industries.

The Aon report showed that while so-called merit increase projections of an individual’s performance are steady at 7.8%, the non-merit salary increase projections, i.e., increases on top of merit hikes such as market corrections, special adjustments and promotions, are expected at around 2.8%.

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“Non-merit base pay is now increasing over the years. In 2018, about 14% of salary hike was non-merit based, and in 2023, it is projected to be 25%,” said Pritish Gandhi, director and leader of the executive compensation and governance practice in India at Aon.

Non-merit base salary hike looks into factors such as skillsets, the potential of the employee and gender parity. Gandhi highlighted that the latter is gaining prominence since the salaries of women employees for the same profiles remain lower than their male counterparts.

According to Aon, the top performer this year may get a hike of 16.4% compared with 16.5% in the previous year. However, if one looks at the real wage growth—which is salary increase adjusted against inflation—the overall hike for 2023 will be 5.2% compared with 3.7% in 2022.

Key employees can get four times the hike of the bottom player, similar to last year. In 2022, the top performer got a 16.5% hike; the lower-rated executives got a 4.3% raise. Eight out of 10 companies will roll out zero hikes for their poorest performer, which means the differentiation between the two ends of the spectrum is getting sharper.

Gandhi expects the momentum to continue and estimates a double-digit hike in 2024 as well, making it the third straight year of good pay hikes. The last time India Inc. gave back-to-back double-digit hikes was in 2015 and 2016, he said.

Among sectors, there are marginal changes between 2022 and 2023, but tighter finances have played a role in the tech sector.

“Globally connected industries, such as technology platform and products, are somewhat cautious in their salary budgets, while industries driven by domestic demand, such as manufacturing or FMCG/FMCD, are bullish on their budget planning as compared to their five-year averages,” Chaudhary added.

Attrition at 21.4% remains the highest since 2009, and involuntary exits at 4.4% are higher than 3.9% in 2022. Aon said that the high attrition was a consequence of an ever-changing talent strategy and the ongoing gap between the supply and demand of talent.

IT services, edtech, logistics, and fintech startups have seen a spate of layoffs and, over the next first half of the year, will see another 15,000-20,000 employees retrenched from the Indian tech and startup industry.