Muted salary hikes in 2021, pay to rise only 1 per cent: survey

After job losses and paycuts in 2020, the year 2021 is being welcomed with hope and optimism. But, as many sectors are still recovering from the impact of the pandemic, the salary hikes for the year are still muted. The year 2020 saw an average actual increase of 5.9 per cent in salaries.

According to a salary survey by Willis Towers Watson, the projected salary rise to be given to Indian workforce in 2021 is at an average of 6.4 per cent, translating to a median increase of 7 per cent, which is only marginally higher than the previous year.

The survey was conducted online in October-November 2020, receiving responses from 300 companies in India.

The marginal rise in salary projections are a contrast to the business revenue outlook given by top executives. Of the surveyed companies in India, 37 per cent have projected a positive business revenue outlook for the next 12 months, up from 18 per cent in Q3 2020.

Also, there is not much optimism towards increasing headcount. Despite a comparatively optimistic projected business outlook, recruitment is yet to pick up. The study shows that only 10 per cent of the organisations in India plan to add new headcount compared to 14 per cent last quarter.

Rajul Mathur, Consulting Head - Talent & Rewards, Willis Towers Watson India said, "As companies in India respond to the economic implications of the COVID-19 crisis, there is an increased optimism on business recovery, but it is yet to translate into the salary increment budget. With compensation budgets lower than previous years, companies are likely to prioritise allocation towards protecting critical and high skilled talent. Through 2021, we can continue to expect greater emphasis on pay for performance and pay linked to business output."

As in previous years, companies will continue to reward the top performers. The survey finds that on average, 20.6 per cent of the salary increase budget is being allocated to top performers, which represent 10.3 per cent of the employees in India. This implies that for each Rs 1 allocated to an average performer, Rs 2.35 is allocated to a top performer and Rs 1.25 is allocated to an above average performer.

Sectoral trends

Sectors such as high tech, pharmaceuticals and consumer products and retail project a median salary increase around 8 per cent, which is more than the overall industry projection. The financial services and manufacturing sectors project a 7 per cent increase in 2021, while the BPO sector is at 6 per cent. The energy sector is expected to see the lowest increase of 4.6 per cent.

Arvind Usretay, Director, Rewards, Willis Towers Watson India said, "All sectors witnessed varying levels of impact due to COVID-19. Some sectors such as hospitality, aviation, travel and tourism were hit harder than the others. Sectors such as pharma, FMCG, e-commerce and high-tech have experienced growth and this is reflective in their hiring plans and salary budgets for 2021."

Salary increase by managerial level

Median salary increase at the executive level for 2021 is projected at 7 per cent, a slight decline from 7.1 per cent in the previous year. For middle management, professional and support staff, a decrease from 7.5  per cent in 2020 to 7.3 per cent in 2021 is projected. The production manual labour employee group is also expected to receive a lower salary increase of 7.2 per cent as compared to 7.7 per cent last year.

"Unprecedented change linked to an increasingly virtual work environment has brought to the fore the role of distributed leadership. Organisations should evolve structures to identify, recognise and reward leaders who have demonstrated the ability to lead change and positively impact engagement and productivity," added Mathur.

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