Despite the gloomy global economic outlook, salary increases in India are expected to remain fairly stable this year, according to the Hewitt Associates sixth annual India Salary Increase Survey.

Hewitt, a global management consulting and outsourcing firm, surveyed 310 foreign, joint venture and locally-owned companies across 21 industry segments and five employee groups, namely senior/top management, manager, professional/technical/supervisory, clerical and support, and manual workers. The study found that overall salary increases across employee groups in India are projected to range from 9.7 percent to 11.7 percent in 2002 on an average, which is a decrease compared to 2001 when average salary increases ranged from 10.2 percent to 14.5 percent. Additionally, 11 percent of survey respondents project possible 2002 salary freezes, with the highest number seen in the software development and IT solutions industries.

Despite this decline, India’s 2001 salary increases were higher than those in the nine other locations studied in Hewitt’s ‘2001-02 Asia-Pacific Salary Increase Survey’, which shows the Philippines with the highest average salary increases, ranging from 10.1 percent to 11.4 percent across employee groups. Projections for 2002 continued to favor employees in the Philippines, where participants projected increases of between 10.8 percent and 11.7 percent, depending on employee group.

"The continued high average salary increases in India may stem from the fact that, while not immune from the global economic slowdown, the relatively low share of overall gross domestic product contributed by India’s trade provides a higher degree of insulation," Ravi Virmani, managing director, Hewitt Associates, South Asia, said.

Telecommunications and accounting/consulting/legal industries reported the highest average salary increases across all employee groups in 2001, at 18.9 percent and 18.6 percent respectively. However, the projected 2002 salary increases for these industries are marginally lower, at 12 percent and 16.2 percent, respectively.

Among the 21 industries surveyed, automobiles/ancillaries, consumer durable goods/electronics and healthcare/medical products and services are the only ones that have reported higher projected 2002 increases as compared to actual salary increases in 2001.

Interestingly, the survey reveals that the highest increases in 2001 were not received by senior/top Management, but by professionals/supervisor/technical employees.

"Since top management holds the greatest accountability for a company’s performance, they have seen their compensation impacted the most during this economic downturn," Nishchae Suri, head of the measurement practice in India and the Middle East for Hewitt Associates, said.

Trends in Variable Pay
Notably, employee performance is increasingly becoming a determinant for employers in rewarding salary increases. Respondents across industries have projected an increase in the variable component of their compensation packages for 2002. Among all employee groups, variable pay as a percentage of total cost to a company was the highest for senior/top management in 2001, at 16.3 percent on average. This is projected to rise to 19.1 percent in 2002.

Approximately 85 percent of the respondents have reported at least one type of variable pay plan for employees, which could be cash-based, stock-based, or a combination of the two. Also, as many as 97 percent of the respondents reported the existence of some form of performance management system for employees, the most common being the end-of-year review. What’s more, 84 percent respondents reported linking salary increases to performance ratings.

Outsourcing Gaining Popularity
As Indian companies focus on reducing costs, 63 percent of respondents agreed that outsourcing some HR activities makes prudent business sense. Salary and benefits processing, benefits administration, and compensation benchmarking and design were the most frequently outsourced HR activities. Survey participants placed particular emphasis on payroll and benefits administration, suggesting that these would lead the way as companies continue to outsource in the future.

"Organizations want to outsource non-core HR administration to reduce delivery costs, improve confidentiality and free people and resources tied up in this activity, while increasing employee service-delivery levels," Sumer Datta, head, Asia-Pacific, benefits and salary administration at Hewitt Associates, said.