Professionals who work in the IT services sector have taken to the social media to complain about low salary increments but the trend is here to stay, according to compensation experts. Employers will rely more on one-off monetary rewards, annual cash payouts, and bonuses to reward talent because of the squeeze on salary increment budgets, they said. Lump sum payouts mean that base salaries don’t change much from year to year.
The IT sector, which has gone through upheavals in recent times, was projected to pay an average hike of 9.5% in 2018. Third-party IT services companies, which provide the bulk of the jobs in the sector, are projecting an average hike of 6.2%, according to the annual Aon India Consulting salary increment survey.
“On a broader level, the IT companies are constrained by the ground realities of tightening and narrower margins and therefore cannot do much in terms of increment,” said CK Guruprasad, consultant at Spencer Stuart. “They will focus on a select group of people who the company does not want to let go and pay them some retention cash rewards/bonuses.”
Annual salary increments across sectors were projected at 9.4% on average, according to the Aon survey of more than 1,000 companies across 20 industries. The survey had outlined that the focus on performance is getting sharper with each successive year. Top performers are likely to get an average salary increase of 15.4%, about 1.9 times that for an average performer, according to the survey.
Muted salary increments across the board mean that high performance will get differentiated more than before.
“The market (IT sector) was growing at a healthy rate over the past 10 years and so there is a set of employees who is used to doubledigit increments,” said K Sudarshan, managing partner, India, at EMA Partners. “Now the market has matured and the growth rate has tapered off. At the same time, newer marquee technologies like artificial intelligence, machine learning, etc, have come in. As a result, it is not possible for these companies to keep increasing salaries at the same rate.” Experts underline two ways in which companies are responding to tighter budgets.
First, they are looking to modify target increases by levels of management, starting with low at the top to protected pay increases at junior levels. Second, companies are gradually decreasing the increment payout for average performers and increasing it for the top-rated ones while sticking to a bell curve so that only the best are at the highest level
Employers have set aside 39% of the budget for high performers, according to Willis Towers Watson India. They are also likely to devote a greater proportion of the salary budget to pay for higher-order or niche skills that are in short supply. Spot monetary awards for top performers in the form of one-time bonuses are a good idea, according to compensation experts.
“These are very impactful as the employees feel valued and recognition is timely,” said Arvind Usretay, director, rewards, Willis Towers Watson India.
Companies are likely to pick those with high potential and give them one-time retention bonuses that will be paid out in full only if the employee stays in the job for a specified period of time of one-two years, said Guruprasad. Also in vogue are deferred bonus plans, which involve a lump sum being paid at the end of a certain period, typically three or five years, to help retain talent, he added.