HR Connect Asia Pacific

Volume 7, Issue 2 | 2014

Salaries in India Set to Rise at the Second Lowest Rate

in Years
Salaries in India are projected to rise 10% in 2014 on the back of improving business confidence,
positive expectations from the general elections, and moderating inflation. According to Aon Hewitt's
18th Annual Salary Increase Survey in India, the 2014 increase is the second lowest the country has
seen in a decade (the lowest was in FY2009 when markets became extremely cautious after the
global financial crisis).
Anandorup Ghose, Rewards Consulting Practice Leader at Aon Hewitt India, commented: This
period reflects the easing off of the unsustainable turbo-charged pre-crisis economic growth. Even
though growth appears to be strengthening in both advanced and developing economies, it is
expected to be muted and slower paced than in the pre-2008 era. This sentiment is reflected in Indias
slightly higher salary increase projections for 2014.
Sectors largely reliant on the domestic economy such as Pharmaceuticals, Chemicals, Engineering
Services and Consumer Goods, are projecting the highest salary increases, typically above 10% for
2013-14. In these industries, compensation costs represent a smaller percentage of the total cost
structure. However, the cautious streak is evident as projections for 2014 have reduced by an
average of 30 basis points from the actual increases provided in 2013 by these industries.
Service industries like Retail, Financial Services, and Hospitality bring up the rear in salary increase
projections, with these businesses impacted by the slowing down of the economy and consumer
spending. In these industries, compensation costs are a significant portion of their total cost structure,
thus managing salary costs has become an important element in their cost management strategy.
It is important to note that the dispersion between the highest paying and the lowest paying industries
has narrowed in 2014 to about 2-3%, as compared to the 5-7% dispersion observed in 2013.

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Volume 7, Issue 2 | 2014

Highest & Lowest Salary Increase Projections for 2014

Lead Industries

2014 Projections

Lag Industries

2014 Projections

Pharmaceutical

12.0%

Automotive

9.5%

Chemicals

11.2%

Energy
(Oil/Gas/Power)

9.2%

Cement

10.8%

RE/Infrastructure

9.1%

Engineering Services

10.6%

Financial Institutions

9.1%

Consumer Products

10.3%

Retail

8.8%

Source: Aon Hewitt Salary Increase Survey in India 2013-14

Other Emerging Trends from the Study

With shrinking salary increase budgets, the one definitive change observed in the compensation
philosophy of organizations in India is the increased reinforcement of the performance and rewards
linkage. Top performers are projected to receive an average 15.3% increase in 2014, almost 1.5 times
the average increment provided to employees meeting expectations. This gap has been widening
over the last decade. Additionally, in the last five years, the percentage of employees in the top
performance rating has dropped by 30%, implying that organizations are not hesitating to differentiate
sharply on the basis of performance and then allocate a disproportionate share of the total increase
budget to top performers, thus encouraging a high performance culture.
Mr. Ghose added, Fundamentally, this is the most distinctive change in the approach towards pay
management. With shrinking pay budgets, companies are more clearly differentiating talent and
performance and providing better pay increase budgets to higher performers.
Slow economic growth and limited opportunities in the market impacted attrition in 2013. It fell to
18.5%, almost 1% lower than previous years, with a reduction of almost 3% at the entry level. With a
growing recognition that motivated, high-performing talent is a sustainable competitive advantage,
organizations are reshaping their strategies to safeguard their key talent. This is reflected in the lower
average attrition for critical talent of 4.5%, down from 5.7% a year ago.
On the back of increased cost prudence and rewarding true performance, spending on variable pay
as part of total compensation has been steadily growing over the past few years. This indicates a shift
in overall pay philosophy, as employers are tying a greater percentage of each employees pay to
individual and overall company performance. Top/Senior Management see 23% of their total

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HR Connect Asia Pacific

Volume 7, Issue 2 | 2014

compensation as variable (up from 16% in 2001) and even the lowest rung entry management gets
approximately 12% of their salary as variable compensation (up from 10% in 2001).
Mr. Ghose commented, While having a successful performance-based incentive plan is important, it
is critical to ensure that the right set of performance measures is used for the plan. We often find that
companies focus on the wrong drivers of performance and value, or let legacy rules and metrics
distort the current performance picture.

Industry Outlook
Pharmaceutical

The Pharmaceutical Industry, with a projected revenue Compounded Annual

Growth Rate (CAGR) of 12% and backed by higher disposable income, the
increased penetration of health insurance, focused medical infrastructure
improvements, and increased consolidation within the sector, has projected the
highest salary increase for 2014 at 12%.

Engineering
Services

Factors such as availability of qualified talent; cost effectiveness; capability to

deliver high-value, complex services; and abundance of design opportunities in
domestic sectors like power, infrastructure, mining, oil & gas, etc., make the longterm growth projection robust for the Engineering Services Industry. This reflects
in the industry projecting a high salary increase of 10.6% in 2014.

Consumer
Goods

The Consumer Goods Sector has been among the top salary increase industries
over the last five years, and remains so this year, though the growth has come
down compared to earlier years. Factors such as

the rise in competition;

pressure on margins given the high input prices;

high spend on advertisements & promotions to fight competition, amid

limited scope for increasing prices;

rising interest rates and import costs; and

cuts in discretionary consumption expenditure

took the sheen off the Consumer growth story in 2013. Accordingly, the
projections for this year stand at a conservative 10.3%.
Automotive

The Automotive Sector in India continued to slow down in 2013 in terms of growth,
in view of increasing fuel prices, rising interest rates, and the economic slowdowns
impacting consumer spending. The industry projected a modest salary increase of
9.5% in 2014, down from 2013s projection of 11%.

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Volume 7, Issue 2 | 2014

Financial
Services

Unstable macroeconomic conditions in India for most of 2013; M&A deals drying
up; low consumer spending impacting sectors like insurance, retail broking and
retail banking; along with the volatile stock markets; made it a tough year for the
Financial Services Industry.
The projected salary increase for 2014 is 9.1%, a marginal increase from the
actual percentage of 2013. The industry remains hopeful of a stronger
performance in 2013, with the announcement of the new banking licenses and
improving global cues. Non-Banking Financial Companies led with a projected
2014 increase of 10.1%, followed by Insurance at 9.4%, Asset Management at
9.3%, and Banks at 9.0%.

RE/Infrastructure

Driven by macroeconomic and sector-specific challenges such as delays in

clearances, lack of funds, and projects getting postponed, the RE/Infrastructure
Sector is projecting a relatively low salary increase of 9.1%. However, the sector
is hopeful of resurgence in 2014, on account of upcoming general elections and
government support for infrastructure projects across roads, railways, and
airports. The Cabinet Committee on Investments has cleared the way for 296
projects with an estimated projected cost of approximately USD 10,630.

Hi-Tech

The Hi-Tech Industry projected an average salary increase of 10.2% for 2014,
with the semiconductor industry leading at 11.3%, closely followed by software
products at 10.8%.
The IT market is expected to grow by 13 to 15% during FY 2014--15, driven by
factors such as greater offshoring by certain countries, and the offshore
outsourcing model gaining acceptance in previously untapped economies.
Growth is also expected from somewhat underpenetrated domestic markets,
coupled with rising consumer awareness, and government initiatives.

ITeS

In the face of considerable global uncertainty, the Indian ITeS industry is

projecting an average increase of 9.9% for 2014. Banking and other captives are
projecting a salary increase of 10.3%, on the back of a stronger US dollar. Thirdparty service providers, on account of tougher global economic conditions and
increased cost pressures, are projecting an average salary increase of 8.2%.
The Knowledge Process Outsourcing firms are witnessing a resurgence and
renewed investments, thus their salary increase projections for 2014 are up from
earlier this year to 11.9%.

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Volume 7, Issue 2 | 2014

Anandorup Ghose added, Wage inflation will continue to be a high pressure point for sectors where
wage cost is a significant part of operating expenses and revenues. This year will be a complex one
for organizations, offering no clear signals as to how either inflation or business numbers will move in
the next two quarters. It might be a good time to be conservative and focus on ensuring that key
compensation and productivity metrics are actively tracked.

About Aon Hewitts Salary Increase Survey in India

Aon Hewitt surveyed over 500 organizations representing 20 primary and 30 secondary industry
sectors. This is the most comprehensive research in the area of rewards and performance. The study
measures actual and projected salary increases, and compensation practices for five specific job
categories, namely top/senior management, middle management, junior manager/professional/
supervisor, staff and manual workforce. The data for the survey was collected over December 2013 January 2014.

Contact
Anandorup Ghose is Rewards Consulting Practice Leader with Aon Hewitt India. He can be reached
at anandorup.ghose.2@aonhewitt.com.

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