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9-10% hikes may not help beat inflation


With costs rising, will a 9-10% salary increase really help? Maybe not, he warned consultants working on compensation across sectors. However, companies are doing their best to offer tax saving benefits and refunds to help increase cash on hand for employees and help them make the most of increased salary packages.

“We have always argued that inflation, as it relates to compensation increases, is somewhat subjective. The RBI (Reserve Bank of India) household inflation expectations survey shows a range of 9-9.9% over the next three months to one year. So, in the hands of the recipient, a 9% increase will be considered as no or little real increase,” said Anandorup Ghose, partner at Deloitte India.

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mint had earlier reported after speaking to several consultants including Aon, Mercer and Willis Towers Watson (WWW) that Indian companies are likely to offer median increments of 9-10% this time, with macroeconomic pressures pushing companies to be more prudent . In fiscal year 2023 (FY23), median remuneration rose an average of 9.5%, the highest since FY20 (9.7%), which mint analysis of Sensex companies showed.

However, in 2019-20 (pre-covid), average annual inflation was much lower, at 4.8%. In FY23, it was at 6.7%, mitigating salary increases. So far in FY24, inflation has softened to 5.4%. “Primarily, salary increases are moderated when the performance of the organization or sector is not good, or when the outlook is not great. In both cases, organizations tend to be conservative,” said Rajul Mathur, head of consulting (India) and head of work and reward and growth (international), WTW.

The manufacturing, engineering, retail and pharmaceutical industries could provide slightly higher salary increases, while information technology (IT) employees could lead reduced budgets, mint reported earlier, citing data from Aon. While engineering companies could roll out an average increase of 10% in 2024 compared to 10.5% in 2023, the energy sector could see an increase of 8.8% in 2024 compared to 8.5% this year, early analysis of Aon data showed. Wage growth for fast-moving consumer goods, chemicals and retail is likely at 9.8%, 9.6% and 10.1%, respectively, which is on par with 2023 increments of 9.7%, 9.6% and 10.1%.

WTW’s Mathur said salary increases are a function of individual performance and potential, organizational performance and plan and the impact of market forces. “Also, 9-10% is a median range. High performing employees may receive higher increments of 12-15%,” he said.

According to Mercer, companies will adjust flexible benefits, focusing on retaining top performers by offering 140-160% increases in variable bonuses. Access to wider medical insurance cover, fuel reimbursement and car leasing policies will be improved.

“Companies are looking at flexible benefits as the description of a family changing workforce. After covid, companies implemented multiple hikes making corrections during the hiring frenzy. So, a 9% rise in 2024 will be significant,” said Mansee Singhal, partner, head of consultancy, Mercer India.

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Updated: 20 November 2023, 12:18 AM IST

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