New Delhi: Employees in India received an average salary increase of 15.1 per cent in 2007, up from 14.4 per cent in 2006, as revealed in the 12th Annual Salary Increase Survey by global human resources firm Hewitt Associates.

The report also predicts an increase of 15.2 per cent in 2008, making this the fifth consecutive year that salaries have demonstrated double-digit growth in India

Sandeep Chaudhary, leader of Hewitt's Rewards Consulting practice in India, said, "The struggle for talent and sustainability is large and rapidly growing in India.  Employees are increasingly looking for great career opportunities and are actively being pursued by other organizations offering extremely attractive opportunities and packages. Hence, organizations are using compensation as a strategic lever in attracting, retaining and motivating talent."

While salary increases are largely dictated by talent supply and demand, Hewitt Associates forecasts a very gradual decrease in salary increases, and a stabilization of increases to a range of nine to 10 per cent by 2012. 

Factors influencing stabilization include reducing the talent skill gap, changing the talent model, making training vital, and re-engineering talent.

Hewitt surveyed nearly 600 foreign-owned, locally owned, and joint-venture companies this year, analyzing information across 19 primary industries and 22 sub-industries. The study measures actual and projected salary increases, and compensation practices for six specific job categories, namely top executive, senior management, middle management, junior manager/professional/ supervisor, general staff, and manual workforce.

Junior Manager/Supervisor/Professional Employees Benefit the Most

In the late 1990s, senior and top management enjoyed the highest salary increases across all surveyed employee groups. However, since the year 2000, staff members at the junior manager/professional/supervisor levels have received the highest increase.

Increasingly, middle management salary increases have also started creeping up. This is largely as a result of a shortage of managerial and technical talent in India.

Hewitt research indicates that India faces a shortage of leadership talent at 26 per cent. However, the country also faces a higher shortage of specialist and technical skills. 

Real Estate Industry Tops with High Salary Increases
Though the fundamentals of the Indian economy are strong, the recent stock market fall and the strengthening rupee herald uncertainty.

For India, the immediate implications of an economic slowdown in the US is not worrying, but this is getting organizations to look at "productivity" as a single most important determinant of long-run prospects.

The two fastest growing cost components in India are real estate and talent, and information technology and outsourcing companies, which have more than 75 per cent of production regulated by the US economy, are concerned about how to manage these elements.

Chaudhary says, "Salary increases in the technology and outsourcing sectors have stabilized since 2004. Even though they are still amongst the highest in Asia Pacific, they have been stabilizing between 13 to 14 per cent, which is not a variation of concern. This is primarily because the salary levels in these two industries are already fairly competitive. Also, with the developing nature of talent within the industry, there is less reliance on the mature or parent industry."

Increasing Attrition Causes Organizations to Keep a Keen Eye on Market

The study also revealed that an increasing number of organizations are plagued by attrition and retention issues.

Attrition rate have reached an all time high in India with the insurance industry reporting the highest attrition rates at 35.2 per cent, followed by IT enabled services (ITES) at 28.9 per cent and Hospitality/Restaurants industry at 27.1 per cent.

"External equity of compensation,' 'role stagnation' and 'limited career opportunities' are the most cited reasons for attrition. In order to retain employees, organizations must architect a compelling employer value proposition.  They have to reduce their current reliance on Total Cash and move to a Total Rewards experience, where the focus is on relational rewards," says Sandeep.

Currently, organizations are trying to retain talent by keeping a closer eye on market movements, a big part of which involves frequent reviews of employee salaries. Growing number of organizations are now benchmarking salaries against best-in-class companies, leaving behind the traditional approach of benchmarking against best-in-industry organizations. 

More than 75 per cent 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 88.7 per cent of participating organizations continue to practice industry benchmarking, 35 per cent are now benchmarking against best-in-class companies.

This follow-the-leader approach has tremendous cost implications and is impacting the productivity of most organizations. In a cost-conscious environment, organizations will soon have to look beyond compensation to retain talent.

Rising Employee Cost Addressed Through Increased Variable Pay

While organizations are being driven to increase their spend on compensation as a result of the ongoing attraction and retention challenges in Asia, many companies are reassessing their human resources strategies and broader business goals to ensure they are getting the most out of their talent and increasing productivity.

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 95 per cent of respondents saying they have variable pay plans in 2007.

According to the study, the actual variable spending as a percentage of payroll was highest for top executives and senior management at 25 per cent in 2007.

Hewitt's study also highlights that two prime challenges faced by organizations in implementing variable pay plans: is that payouts are viewed as entitlements by employees; and that organizations are not effective in communicating plan expectation and objectives to employees.