How Should We Approach Salary Hikes in 2009 Amid Global Economic Challenges?

Dear Friends,

Season's greetings to you,

All of you (our seniors and my colleagues) who are related to compensation and salary subjects are requested to contribute to this topic.

Now is the time to think and thereafter give suggestions to top management regarding the possible hike in salary.

For these reasons, I am posting some basic data that would kickstart the thinking process within yourselves.

When we think about Indian scenarios, we should definitely consider the global scene. The global economy will be moving at a slow pace, and the risk to the world economy has significantly increased. The continued problems in the US and European financial sectors are adding pressure to already rising inflationary issues. There is an upward pressure on prices mainly due to rising oil and food prices. The outlook of the financial crisis that started in September 2008 in the US and Europe has forced many banks to write off assets worth many billions of dollars, with more news pouring in on a daily basis. This will further erode asset quality as there are chances of a slow growth rate everywhere. Europe is under pressure due to tough monetary conditions and higher inflation because a number of assets are getting eroded in countries like Ireland, Spain, etc. Thus, Europe will suffer as exports will decline due to less demand from the US.
Asian countries will be affected due to the ripple effect created in the US and Europe. The domestic demand for commodities and services is still large in countries like China and India, but due to export activities slowing down to the US and Europe, growth will be affected.

The GDP (%) of India in 2007 was at 8.8%, while in 2008, it is expected to be around 7.8%, and in 2009, it is expected to be around 7.4%. Leading economists and experts from around the world say that India's economy will grow at a slow pace. The services sector maintained its growth rate at 10.3% in the year 2007-08. As compared to the service sector, the performance from the manufacturing sector was considerably less. It was 4% in March 2008 as against 14.4% in March 2007.
In the month of June 2008, we saw inflation reaching 11%. In order to curb inflation, we saw many measures taken by the government. The government hiked petrol and diesel prices by Rs. 5 and Rs. 3, respectively. The RBI has hiked the CRR by 50 basis points and the short-term lending rate by a similar margin to curb inflation.
In India, 300 million people are employed in agriculture. Software and BPO industries employ around 2.5 million people. The unemployment rate was roughly around 7.9% in 2007. In 2008, it is estimated to be 7.3%.

The increments that were paid in 2007 were in the range of 14% to 16% for executive and management personnel. For blue-collar personnel, the incremental value stood at 12.55% to 13.5%.

Hence, based on the above information, what should be the compensation hike that we can propose to our organization? We have to consider the industry type in which we are operating, the region where we are conducting business, the demand for the products we are aiming to increase, the market share whether it is shrinking or expanding, etc.

I request all of you to contribute your views, even if they are wrong. This will certainly help us to suggest good measures to our respective organization.

Best Regards,

Ashish

Dear Friends,

Season's greetings to you,

All of you (our seniors and my colleagues) who are related to compensation and salary subject are requested to contribute to this topic.

Now is the time to think and thereafter give suggestions to top management regarding the possible hike in salary.

For these reasons, I am posting some basic data that would kickstart the thinking process within yourself.

When we think about Indian scenarios, we should definitely consider the global scene. The global economy will be sailing at a slow pace, and the risk of the world economy has increased significantly. The continued problems in the US and European financial sectors are adding pressure to already rising inflationary issues. There is an upward pressure on prices basically due to rising oil and food prices. The outlook of the financial crisis that started in September 2008 in the US and Europe has forced many banks to write off assets worth many billions of dollars, with more news pouring to us on a daily basis. This will erode the asset quality further as there are chances of a slow growth rate everywhere. Europe is under pressure due to tough monetary conditions and higher inflation due to the number of assets getting eroded in countries like Ireland, Spain, etc. Thus, Europe will suffer as exports will take a dip due to less demand from the US. Asian countries will get affected due to the ripple effect created in the US and Europe. The domestic demand for commodities and services is still large in countries like China and India, but due to export activities getting slowed down to the US and Europe, the growth will be affected.

The GDP (%) of India in 2007 was at 8.8%, while in 2008, it is expected to be around 7.8%, and in 2009, it is expected to be around 7.4%. Leading economists and experts from the world say that India's economy will grow at a slow pace. The services sector maintained its growth rate at 10.3% in the year 2007-08. Compared to the service sector, the performance from manufacturing was considerably less. It was 4% in March 2008 as against 14.4% in March 07. In June 2008, we saw inflation reaching 11%. In order to curb inflation, we saw many measures taken by the government. The government hiked petrol and diesel prices by Rs. 5/- and Rs. 3/- respectively. The RBI has hiked the CRR by 50 basis points and the short-term lending rate by a similar margin to curb inflation. In India, 300 million people are employed in agriculture. Software and BPO industries employ around 2.5 million people. The unemployment rate was roughly around 7.9% in 2007. In 2008, it is estimated at 7.3%.

The increments that were paid in 2007 were in the range of 14% to 16% for executive and management personnel. For blue-collar personnel, the incremental value stood at 12.55% to 13.5%.

Hence, based on the above data, what should be the compensation hike that we can propose to our organization? We have to keep in mind the industry type where we are operating, the region where we are doing business, the demand for products that we are aiming to increase, the market share whether it is shrinking or expanding, etc.

I request all of you to contribute your views, even if they are wrong. This will certainly help us to suggest good measures to our respective organization.

Best Regards,

Ashish

In my observation, your concept of compensation review is different from the market practice in India.

First of all, there is no uniformity in our compensation and benefits structure all over India, neither are they uniform at the regional or local level or within a similar industry.

There are five basic tools to compensation (or reward) in organizations. These are:

1. Base salary,
2. Short-term incentives,
3. Long-term incentives,
4. Employee benefits,
5. Perquisites - retirement plans, health insurance, a chauffeured limousine, an executive jet, interest-free loans for the purchase of housing, etc.

Salary (also now known as fixed pay) is coming to be seen as part of a "total rewards" system which includes variable pay (such as bonuses, incentive pay, and commissions), benefits and perquisites (or perks), and various other tools that help employers link rewards to an employee's measured performance.

A salary is a form of periodic payment from an employer to an employee, which is specified in an employment contract. From the point of view of running a business, salary can also be viewed as the cost of acquiring human resources for running operations and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll accounts.

Wages may be contrasted with salaries, with wages being paid at a wage rate (based on units of time worked) while salaries are paid periodically without reference to a specified number of hours worked. Once a job description has been established, wages are often a focus when negotiating an employment contract between employer and employee.

The six categories of salaried workers exempt from overtime provisions are:

1. Executive Employees, who hire, fire, and direct others;
2. Administrative Employees, exercising discretion as part of office work;
3. Learned Professional Employees, such as medical practitioners, lawyers, engineers, dentists, veterinarians, accountants;
4. Creative Professional Employees in an artistic field;
5. Computer Employees, who must meet certain threshold tests; and
6. Outside Sales Employees, who must work away from an employer's place of business. Some of the 2004 exemption tests depend on being paid a weekly salary of greater than $455, even though no hourly minimum wage is required or the maximum number of hours worked is established.

Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries.

Fringe benefits can also include but are not limited to: (employer-provided or employer-paid) housing, group insurance (health, dental, life, etc.), income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit-sharing, funding of education, and other specialized benefits.

In addition to the above, the Cost of Living Index provides scope to adjust inflation cost to compensate and restore the relative market worth of the job. In India, this applies either to Minimum Wage Workforce and Government Servants who practice this religiously. Other than these, some private sector companies also establish a cost of living index for updating per point increase in the index to pay in the form of "Variable Dearness Allowance."

Now, if we take Industry, Region, National, and Market consideration for demand and supply of skills, there is no proper mechanism to establish scientifically what should be the job price because no industry practices Job Evaluation process and have a mechanism to justify and periodic review or market survey.

There are no national statistics to price the job values and skills.

You are suggesting economic indicators to assess salary and relative increment based on inflation or current economic trends to set a trend for increment. But that's a totally judgmental approach.

Regards,

Sawant

Well, according to me, organisations are already looking at training multi-skills. This can be considered as one of the main criteria for salary revision along with customer satisfaction and business building. Some of the points that can be considered:

Managers can be more stringent while declaring variable payouts.
Work responsibility to be given more, and then give incentives.
Performance threshold to increase from 60% to 75%.

Regards,
Suman