Salary appraisals 2024: Is India Inc moving beyond monetary compensation?

The year 2023 has witnessed geopolitical tensions, rising inflation, a deepening funding winter for Indian startups, significant IT layoffs, the great resistance of bringing employees back to the office — 2024 looks a tad better. As the financial year draws to a close, March and April mark the period when numerous industries undertake their annual performance evaluations. It's the season eagerly awaited by employees across industries, with a fervour akin to the excitement for the arrival of the monsoon rain, as they anticipate their annual performance appraisal. Job hiring slows down as employees wait for their appraisals before seeking new opportunities.

Statistics have shown that during this time, about 15% more employees are on the lookout for better prospects; hoping for a pay increase after their review. Many companies have already announced their salary hikes, forecasting an average salary growth ranging from 9% to 10%. While this might be slightly incremental after last year's figures, it signals a return to pre-pandemic levels. Certain pivotal roles or top performers may warrant special consideration, leading to a disproportionate salary hike.

From India’s perspective, 9-10% average salary hikes are nominal due to the country’s inflation of around 6-7%. Thus, even with a 10% increment, employees would technically receive a nominal hike of 3-4%. However, the increment rate is not expected to be uniform, given India’s large and complex market and sectors performing differently.

The IT services sector is experiencing a slowdown due to decreased demand from the western market. Additionally, there is a funding freeze in the start-up space, with companies focusing on profitability and optimising resources. In contrast, the BFSI (banking, financial services and insurance) sector is growing as the economy formalises, and infrastructure is thriving due to increased government spending. The appraisals will not be uniform and will depend on the sector’s overall performance.

Attrition spikes

Post annual appraisals and salary hikes, statistics show that the attrition rates jump substantially, with a large portion of employees citing unsatisfactory appraisal as the reason for wanting to change their jobs while the rest of them in pursuit of better compensation. The biggest two reasons for voluntary attrition in my mind are: (i) external inequity of compensation, where an employee's pay is compared to competitors in the same industry or market, and (ii) internal inequity of compensation, where certain employees are compensated unfairly compared to others within the same organisation.

No longer the conventional employer's market

The current job market favours job seekers. Digital mediums have given candidates more power in their job hunt, as well as more view on where their next job might be. A considerable number of professionals are changing their job search approaches, reflecting a proactive workforce actively pursuing better opportunities. During a new job change, employers often offer salary increases ranging from 20%-50% and even up to 100% for certain in-demand roles.

Amid global concerns and climatic conditions posing a threat to the world economy, the current job market is not going to be like the Y2K crisis or the Great Recession 2008. With each occurrence, there were fewer job opportunities and a decline in salaries. Hundreds of thousands of experienced employees were competing for specialised roles at any available rate.

That's not the situation today. The world of work is shifting towards premiumization — premium compensation is awarded to niche skilled employees, and then there's a focus on skills premium, where higher salaries are offered to those with unique and high-demand digital talents.

Key retention strategies

Reducing employee turnover: Attrition is inevitable; efforts can only aim to minimise it. Organisations are placing greater emphasis on employee benefits and wellness to meet the expectations of today's modern employee. The war for talent is intensifying as organisations vie for skilled individuals amidst growing skill shortages and high attrition rates. Promotions are commonly leveraged as a strategic means to retain talent amidst this escalated competition. Moreover, companies are increasingly prioritising the satisfaction of their top performers through enhanced benefits, perks, job variety, and additional incentives.

Personalised career development opportunities: Employees are more likely to stay with a company that invests in their professional growth. Providing training programs, workshops, mentorship opportunities, and clear paths for advancement demonstrates a commitment to employees' long-term success.

Beyond monetary compensation: Dale Carnegie believes “People work for money but go the extra mile for recognition, praise, and rewards". Companies are opting for non-monetary benefits and incentives as a strategy to attract and retain talent, which includes flexible work arrangements, opportunities for career advancement and skill development, comprehensive health and wellness programs, generous vacation and leave policies, and a supportive company culture that fosters work-life balance and employee well-being.

Skill development: Investing in skills development is becoming increasingly crucial for organisations aiming to bridge skill gaps and enhance employee retention. By offering opportunities for continuous learning and professional growth, companies can not only nurture their employees' potential but also cultivate a culture committed to their long-term success.

Recognition and rewards: Acknowledging employees' achievements and contributions through regular feedback, performance evaluations, and rewards programs can boost morale and motivation. Recognition can come in various forms, such as bonuses, promotions, or even simple expressions of appreciation.

India’s growth trajectory

Looking ahead, India’s trajectory remains promising, with the IMF forecasting robust growth. As the economy burgeons, poised to scale new global heights, the corporate sector must navigate these prosperous yet precarious waters with a keen eye on both fiscal prudence and the human element of its enterprise.

In this complex tapestry of aspirations, economics, and human endeavours, 2024 stands as a testament to India’s resilience and its unyielding pursuit of progress amid the global tableau.

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Author

Kartik Narayan

CEO, TeamLease Services Limited

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Disclaimer: This blog was first published on TeamLease Services Limited.