After higher inflation, real salary increase to be lesser in 2019

Compared to 2016 and 2017, we have not seen any major disruptions so far in 2018. But global advisory firm Willis Towers Watson still has a cautious outlook towards salary increase for 2019. It projects 10 per cent rise in gross salaries for next year, in line with the hikes in the past three years. But more importantly, the real salary increase minus inflation is just 4.6 per cent, much lesser than those in the past three years. 

In 2016, 2017 and 2018, the actual rise in salaries across sectors was 10 per cent. However, in the inflation has been rising these years – 4.9 per cent, 4.4 per cent an 5 per cent. Hence the real salary growth has actually come down from 5.6 per cent in 2017 to 5 per cent in 2018 and is expected to be 4.6 per cent in 2019.

“Salary increase in India or elsewhere is best understood in the real wage increase terms. This essentially means we look at the net figure of increase budget less of inflation. Real wage projection for India is 4.6 per cent. Amongst other comparable markets in APAC, India continues to have a higher inflation rate and hence also the higher increase budget. Inflation itself has hovered around a narrow band of 5-6 per cent. Businesses generally have had a cautious outlook towards growth prospects and therefore, salary increase budgets may not have been significantly increased,’ said Arvind Usretay, Director, Rewards, Willis Towers Watson India.

Nevertheless, the gross salary increase in India is highest in the Asia Pacific region. Indonesia is projected at 8.3 per cent, China at 6.9 per cent, Philippines at 6 per cent and Hong Kong and Singapore both at 4 per cent.

The salary increase will be lower in Indian companies compared to MNCs. “MNCs that typically have KPO/BPO or manufacturing operations in India will likely see average salary increases around the 10 per cent mark, as in dollar terms this is not a significant increase to their cost of operations. However, Indian companies will likely see a lower salary increase which is more directly linked to their financial performance,” Sambhav Rakyan, Data Services Practice Leader, Asia Pacific, Willis Towers Watson said. 

Pharmaceuticals sector has the highest projected salary increase for 2019 at 10.3 per cent. The salaries for consumer products and retail sector will remain consistent at 10 per cent owing to the green shoots of recovery in the sector’s performance, increasing consumer confidence and purchasing power. BFSI has seen a steady increase from 9.1 per cent in 2017 to 9.6 per cent for 2019, largely due to improved performance, higher premium collections for insurance companies and regulatory reforms.

Median salary increase for 2019 at executive level is projected at 9.8 per cent, a marginal drop from 9.7 per cent in the previous year and at 10 per cent for mid management and production / manual labour, a drop from 10.1 per cent.

About 42.6 per cent of the total salary increment budget is being allocated to top or above average performers. On average, 17 per cent of the salary increase budget is being allocated to top performers, which represent 13.1 per cent of employees in India. This implies that for each $1 allocated to an average or below-average performer, $1.31 is allocated to a top performer.

“Salaries of senior people would have greater component of variable pay. Companies would differentiate above-average and outstanding performers in a significant way from the performers who meet expectations. More and more companies are shedding the bell curve method of force-fitting performance levels and applying averages. Hence, they will be able to differentiate performance levels and the salary hikes accordingly," said Aditya Narayan Misra, CEO of CIEL HR Services.