Managers beware: The glory days of huge pay hikes every year are over. The average annual rate of increment, on a year-to-year comparison, is plummeting in 1998. Against an average of 24-26 per cent in 1997, the maximum average increment this year will not exceed 18-19 per cent, while the minimum might plunge to an unprecedented low 10 per cent.What's more, thanks to the double whammy of rationalisation and recession, annual increments of 20 to 30 per cent will soon become a fond memory. Starting 1998, Corporate India's annual wage bill will rise less and less, till the annual rate of increment finally settles into single digits.
Says Omam Consultants executive director Rajeeva Kumar, which specialises in compensation research: ``With the market being depressed, everybody is becoming realistic.'' Adds Noble & Hewitt consultant Rittu Sinha: ``The wage spiral is due to the market stabilising over time. But because of the recession, it's happening much sooner.''
Omam's predictions? In 1998, the softwareindustry will see increments drop to 18-22 per cent (from 27-28 per cent in 1997); automobile industry, 18 per cent (22-23 per cent); general engineering, 13-14 per cent (18-20 per cent); textiles, 13-14 per cent (18-20 per cent); and consumer durables, 20 per cent (24 per cent).
Tighter purse-strings: 1998's poor showing is in painful contrast to the breakneck growth corporate wage bills saw in the past few years. In 1994, for example, average increments touched an all-time high of 35 per cent. But then, in the post-liberalisation era, companies were in the `attraction phase': To recruit and retain the best manpower, established corporates as well new-entrant transnationals scrambled to outbid one another at increment time.
Now, these companies have not only stabilised their manpower needs -- till two years ago, there were five jobs for every two people, according to Noble & Hewitt -- but also, erstwhile high-paying sectors such as banking and finance have become parsimonious. As the post-liberalisationeconomy matures, adds Sinha: ``There might be a nominal hike in the rate of increments, but it will never go back to the good old days.''
Then there is the recession. According to Noble & Hewitt estimates, from an average annual rate of increment of 24-26 per cent in 1997, increments should have come down to 20-22 per cent in 1998 and only by next year fallen below the 20 per cent watermark. However, with the bottomline feeling the squeeze in the last two years, India Inc has begun tightening the screws on the wage bill in 1998 itself.
The COLA Crunch: Consequently, to calculate the annual rise in the wage bill, most companies are focusing only on covering their employees' raised cost of living rather than being seen as generous paymasters. The most popular platforms for constructing the increment structure for the year remain the two indices: the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). However, as both indices do not exactly reflect a manager's basket of goods, companiesare developing in-house formulae based on the WPI or the CPI to calculate the real rate of inflation effecting their employees. The real rate of inflation then defines the Cost of Living Allowance (COLA) offered to employees.
This year, companies are calculating the COLA-band according to one of the two formulae:
The CPI-based rate of inflation plus or minus 2 percentage points.
Given a current rate of inflation based on the CPI, at around 12 per cent, the highest increment for the company would be 14 per cent, while the lowest would be 10 per cent.
The WPI-based rate of inflation multiplied by two, and plus or minus 2 percentage points.
Given a current rate of inflation of 8.78 per cent, the company's highest increment would be 19.56 per cent (8.78 x 2 + 2) or a minimum of 15.56 per cent (8.78 x 2 - 2).
Within the COLA bandwidth, junior managers will tend to get increments on the low end of the scale, middle managers the average rate, while senior managers will becompensated on the top end of the band. Says Kumar: ``That's because the basket of goods used for the CPI matches that of the senior manager's.''
Also, 1998 is increasingly seeing pay linked to performance. In the liberalisation era, companies had steadily moved away from the traditional increment structure based on salary-grades and fixed-increments.
For the last couple of years, increments were calculated on the basis of three elements: COLA + performance amount (which was linked to the salary grade-increment relationship of the past) + market gap (based on benchmarking against the industry).
Now, the popular new formula in place is: COLA + Reward + Market gap. Here ``reward'' is defined as a one-time monetary payment made to an employee on an annual basis in lieu of the good performance registered in the last financial year.
Warns Kumar: ``There can be a variation of one to six times between the increments given within one level.'' With pay packets remaining static across the country, there arepockets of hope for managers, however.
Family-owned businesses who are still trying to benchmark against industry salary standards will be more generous than the average rate.
Companies based in the south, who are still to catch up with north and west-based salary levels, will continue to offer prime annual payouts to retain manpower. And finally, multinationals setting up operations in the east will emerge as generous paymasters at increment time. For the rest though, as Corporate India begins to tighten the purse-strings, it will be managers who will feel the pinch-at increment time.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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