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back to index backGLOBALtalk July,  2007

INDIA: Further Substantial Salary Increases in 2007

India Reports Average Salary Increase of 14.4% in 2006.

NEW DELHI–Employees in India received an average salary increase of between 11.9% and 16% in 2006, on par with last year’s increases, according to the 11th annual Salary Increase Survey conducted by Hewitt Associates, a global human resources services company. Participating organizations also predict an increase of 14.5% in 2007, making this the fourth consecutive year that salaries have demonstrated double-digit growth in India.

Sharad Vishvanath, joint leader of Hewitt’s Talent and Organization Consulting Analytics practice in India, commented, Due in large to the effects of globalization, the war for talent is becoming increasingly fierce in India. As a result, compensation now plays an increasingly fundamental role in attracting talent and ensuring ongoing employee engagement. Salaries in India continue to rise and will most likely reach the same levels as more developed economies in Asia in the future.”

Hewitt’s Salary Increase Survey also demonstrated that locally-owned organizations are awarding higher salary increases than multinational companies in India. In 2006, locally-owned organizations saw an overall salary increase of 14.9%, while foreign-owned organizations saw an overall increase of 14.3%. This highlights alignment of compensation practices of homegrown organizations to global standards in a bid to strengthen their reward management practices and focus on pay for performance to attract and retain talent, and enhance overall productivity.

Long the bastion of hi-tech, technology and pharmaceutical companies in India, equity-based compensation is an innovative way of retaining key employees, creating employee ownership and driving performance, and is increasingly being used by traditional brick and mortar companies (whose stocks have been on a major upswing). Of participating organizations, 64% offer long-term incentives, out of which 68% say stock options are their favored plan.

According to Sandeep Chaudhary, joint leader of Hewitt’s Talent and Organization Consulting Analytics practice in India, Riding on the booming stock market, organizations in India are increasingly using equity-based grants to help deliver increased value to employees. However, despite its popularity, India lags behind its western counterparts in adequate leverage of equity linked incentive. Now with Fringe Benefit Tax on employee stock option plans (ESOPs) or any equity-linked incentive, this will prove a dampener for organizations who were just beginning to use them as a strategic rewards tool to manage compensation and drive retention.

Professional/ Supervisor/Technical Employees Benefit the Most

In the late 1990s, senior/top management enjoyed the highest salary increases across all surveyed employee groups. However since the year 2000, staff members at the professional/supervisor/technical level have received the highest increase, and this is expected to continue next year. This group received a salary increase of 16% in 2006 as compared to 15.4% in 2005.

Increasing Market Orientation

With the pressure to retain key talent growing, an increasing number of organizations are ensuring their pay is competitive by closely monitoring market movements. More than 70% of participating organizations review their markets annually, using multiple sources of information to benchmark compensation, such as sponsored surveys, published surveys and information from personal contacts. While 87.1% of participating organizations continue to practice industry benchmarking, a record 36.6% are now benchmarking against best-in-class companies.

Rising Variable Payouts

The study also highlights that the use of variable pay as a strategic lever continues to be an important means of attracting and retaining talent, with 87% of respondents saying they have variable pay plans in 2006.

Individual performance awards continue to be the most popular, with 81% of responding organizations saying they are their preferred type of variable pay plan. They also indicated individual performance awards have the highest impact on business results, followed by team awards.

According to the study, variable payout awarded by companies in 2006 was 16.5% of their payroll. This year, target variable payout was highest for senior/top management at 20.4%, and is expected to rise to 21.4% in 2007.

Hewitt’s study also highlights that the prime challenge faced by organizations in implementing variable pay plans is poor communication of their objectives to employees and inappropriate measures of gauging performance. Also in most cases variable pay is viewed as entitlements.

About Hewitt's Salary Increase Survey

Hewitt surveyed close to 600 foreign-owned, locally-owned, and joint-venture companies this year, analyzing information across 21 industries. The study measures actual and projected salary increases, and compensation practices for five specific job categories, namely senior/top management, middle management, professional/supervisor/technical, clerical/support, and manual workers.

Source:  Hewitt Associates India - GAI

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