What Salary Increase Should I Expect in a Small IT Company? HR Insights Needed

Dear Friends, I want to know one thing from the HR professionals who are working in IT companies. Actually, I have been working in an IT company (25 employees) for a year now, and I would like to understand what is the appropriate percentage of increment (maximum-minimum) that I can consider. This information will be very helpful for many HR professionals working in IT companies. I am looking forward to valuable responses.

Thanks & Regards,
Sneha Joshi

There is no standard format for increments. It entirely depends on the management, the profit they are generating, and individual performance. For example, in the past 2 years, there have been no increments due to a decrease in profits. Some companies have provided increments ranging from 5% to 10%. For instance, the organization where my cousin works offers increments of 7-9%, whereas in our organization, we received appraisals ranging from 20% to 35%.

Thank you.

Thank you so much for your reply. I am 100% in agreement with you. However, I want to know if the company is making an average profit, what standard are they adopting as a small-scale company? This is important because one should offer salaries and increments based on market rates. What is the market rate for increments in an IT company?

Regards,
Sneha

In the IT industry, there are no fixed percentages for increments. This industry is very sensitive. I would like to suggest not focusing on all employees overall; instead, you should assess individual employees. At this time, performance is key. Therefore, you need to discuss each employee's performance with the Project Manager and Team Leader.

Suggestion on Rewards and Recognition

I have a good suggestion regarding rewards and recognition. This also impacts performance appraisals.

Regards,
Hardik

First, thank you so much...  I agree with your view that the increment wholly depends on the employee's performance. Let's say I have given one employee a 15% increment, and with that performance, another employee working in a different company (same scale and same profit earner) is getting a 30% increment. There is a wide gap between the increments of the two employees in the two companies.

Concern About Fair Employee Increments

My concern is that I want to give employees what they really deserve. Performance is undoubtedly the first and most crucial criterion, but I cannot ignore this aspect either. I must know the present scenario running in the market...

Regards,
Sneha

I agree with your rationale behind inquiring about the prevailing rate in the IT industry so that you can adopt a formula more or less closer to it. Failing which, the talent may leave your company. It is a sound principle of talent management if you want to sustain the talent in your company. My suggestion is, since yours is a small company, do not try to adopt a standard prevailing in IT hubs like Bangalore, Hyderabad, Mumbai, or Chennai because the incremental percentages might be higher due to stiff competition there and the bigger size of the company with wider profit margins than yours. Adopting a standard of metros may not be realistic for a small company like yours.

Factors to Consider in Finding a Formula

Normally, two factors can be adopted in finding out a formula:

1) Region

2) Similar-sized industry

Since your company is located in Pune, find out what is the rate or percentage of increment that is followed in Pune in IT companies of your size. You can fix one on this basis at the same rate or a slightly higher rate if your profits permit it.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Thank you for your valuable response! You are right on your path; in a company, there is not only a Performance Appraisal system, but as a modern approach, a company should adopt a total Performance Management System, which includes everything you mentioned. However, I would like to say one thing: in a small-scale company, you cannot adopt all these things. As an HR professional, I tried to implement such strategies, but due to the nature of the company, I couldn't. Nevertheless, I am doing my best to incorporate these practices as they are essential steps in the process.

Determining the Percentage of Increment

I would also like to know the formal standard for determining the percentage of the increment a company should provide. Increment is a crucial aspect of the performance appraisal process. Both you and Hardik mentioned that the increment should be based on performance. If the performance is excellent, how do you decide the specific amount to be given? If your answer is that it depends on the company policy, then I am curious to understand how and on what basis this policy was established!

In essence, my question is: what percentage of increment do you provide to employees in IT companies?

Regards,
Sneha Joshi

Hi Sneha, To fix the increment percentage, you need to consider the organization's ROI and P&L. If your organization is profitable by about 30%, then you can consider an increment of around 15%. When conducting the performance appraisal, you can split it into 3 levels: Level 1 eligible for 15%, Level 2 for 10%, and Level 3 for 8%.

The information above provides you with a brief idea, but you can further elaborate on it.

Regards, Shashikanth

Your answer gave me a smile...  Thank you so much. Yes, ROI and P&L are very important, and we had already worked on it. As I wanted the information on the increment ground, thanks for your response to the exact question which I wanted.

Regards,
Sneha Joshi

The increments for employees can be decided based on the following parameters:

Compensation (Salary Hike) of Employees

A. Company Budget: As decided by the Management

B. Industry Trends: Overall in 2012, IT hikes (India) have been between 8-12%

C. Team Budget Allocation: As decided by Management based on Team revenue generation

D. Performance Ratings: Given all other parameters are the same - Company Budget, Team Budget, No other salary corrections, then for the same ratings, the hikes should be uniform

E. Salary Corrections/Market Corrections: if any

Once you have decided the Min-Max hikes, note that the hikes cannot be the same across salary slabs. That is, an employee earning 2-5 LPA should get a higher percentage hike than an employee earning 10-15 LPA.

What You Can Do

Make grades based on salaries:

Grade Payscale

A 0-5 LPA

B 5-8 LPA

C 8-12 LPA

D 12 and Above LPA

Ratings-Level

Salary Level-LPA 5 4 3 2 1

A (0-5 LPA) - Percentage Hike in Salary 15 13 10% 0 0

B (5-8 LPA) - Percentage Hike in Salary 13 10 8 0 0

C (8-12 LPA) - Percentage Hike in Salary 10 8 6 0 0

I did this and it helped me, I hope this helps you as well.

Regards,
Prathiba Nair

Last year, information technology companies, especially software companies, provided little to no increments. Mostly, it ranged from 3% to 8% for large companies. Only Wipro offered more significant raises. Some smaller companies offered higher increments to attract talent from larger corporations.

This year, with a larger bench staff, increments are expected to be lower than 5%. By reviewing newspapers from the last three months, you can find information on various companies and their increment levels. However, certain skill sets are in short supply, and you may need to offer higher compensation to attract and retain talent.

Hi Sneha,

First, check with your management what percentage they have fixed in the budget for increments in the overall salary for the year based on the targets and profits. Then, check the individual appraisals and their ratings. After that, you can decide the percentage based on their ratings and discuss it with HR. Finally, discuss with your management what you have allocated for individuals. The overall increment should align with the budget. It's like cutting a cake and distributing it to everyone. Each individual should feel they have received a fair share.

Regards,
Pradeep

I agree with Pratibha on deciding the increment. In the IT industry, human skills are the main ingredient for billing. Hence, normally in the IT industry, the main ingredient for revenue generation is human skills. Therefore, 30 to 40% of your revenue should be the overall professional manpower cost, which does not include support services like admin, HR, etc.

Regards,
T

This topic has, in fact, drawn very valuable inputs from the members. In my view, you should not attempt to adopt any ideal or national standard. For example, the formulas or standards adopted by companies in metro IT hubs like Bangalore, Hyderabad, Mumbai, or Chennai may be higher. This is due to the fact that the size of the companies may be bigger with higher profit margins. Competition is fierce, and employment opportunities may be abundant, making job hopping easy. To retain talent, companies may have to adopt attractive appraisal ratings within the budgets they can permit. A small company in a tier-II city cannot wear the same stripes as metro IT companies since those formulas may not be realistic for them.

Factors Influencing Increment Decisions

In my view, two factors can influence the decision to fix a realistic formula:

1. **Region** - Where the industry is located, and in your case, it is Pune.

2. **Similar-sized Industry**

3. **Similar Budgetary Resources** - It means the practice adopted in similarly sized IT industries located in the Pune region can be taken as a standard that is realistic for your company. Therefore, you need to confine your research to the Pune IT industry.

Regards,
B. Saikumar
Mumbai

Could you gather some market data from small-sized IT companies in Pune? I also work for a small-sized IT company, and on April 13, we are planning to propose salary revisions. Please share any details you have gathered.

Thank you very much.

Regards,