Increments In Times Of Layoffs

Attrition levels have come down by 200–300 bps in the last six months further easing the pressure on companies.


The last few years have seen massive upheavals in the talent market. After witnessing a slowing economy in 2019, 2020 saw an abrupt halt in hiring right after the first lockdown. While most industries paused or significantly reduced pay increases, and some companies even headcount, the technology industry went on a tear. In many ways 2020 was perhaps the first time in the last few decades that we saw such a massive divergence in the talent market. The technology industry (initially product companies and then even IT services) went on a massive hiring spree and salaries started shooting up for anyone who had the right technology and digital skills, while manufacturing and service industries completely clamped down on hiring. While this largely continued in 2021, the second half of the year saw a stark shift in the traditional industries as the economy opened up a lot more.

But 2022 has been the most interesting so far. Inflation spiked above the RBI’s as well as employees’ comfort zone in the first quarter followed by a pan-industry trend of higher salary increases and attrition levels. The global sentiment started shifting soon after and companies in India started to feel the global pinch of contractionary monetary policies and geo-political events. We are today, in many ways, seeing the exact reversal of the trend we saw in 2020. Sectors aligned to greater digital interactions are seeing a slowing down of business (and perhaps more importantly, availability of capital), while industries that are based on more physical interactions (e.g., travel, hospitality, retail, auto) are doing much better. Attrition levels have come down by 200–300 bps in the last six months further easing the pressure on companies.

The conundrum before us is what happens in 2023 – so let’s look at a few fundamentals. Firstly, while the spike in inflation has been tempered, partly due to higher interest rates, it continues to remain high. This is a global phenomenon. Secondly, while the definition of recession may be debated, it is hard to ignore the accentuated volume of talk around an impending global recession. The Indian economy however is still expected to expand at a slightly moderated but enviable rate of 6.0 – 6.5 percent in the next financial year.

So, what lies ahead for pay increases? Indian-headquartered companies have their compensation correction cycles between April – July, i.e., the new compensation levels are announced in this period and so, for most of these companies, there is the luxury of time for a couple of more months to see how the macro environment evolves. But for most MNC’s, compensation corrections are effective January. These companies have a dual challenge of high inflation and compensation increase expectations along with the need to take a decision amidst massive flux in the economy. Through our conversations with companies, we are seeing a few trends come through. Across sectors, there is a 40–80 bps drop in pay hikes compared to 2022. Expect significant variances across sectors though. IT companies will see a reduction of between 20–150 bps. The sharpest drop is likely in IT product companies where pay increases are expected to be a little above 10 percent down from 12 percent in 2022. The lowest drop would be across Global Captive Centres where the increases are expected to only marginally go down by 10–20 bps. Manufacturing companies are expected to see pay hikes in the region of 9.8 percent, a drop of about 40–50 bps compared to 2022. Interestingly, some sub-segments within manufacturing, such as power and renewables, might see an increase in their pay hikes compared to 2022. The consumer goods segment is also expecting to provide better salary increases next year at approximately 9.8 percent, up by 80 bps from 2022. The services segment is expected to look at higher pay increases at approximately 9.5 percent, an increase of over 60 bps.

It is important to note that these estimates are based on data from MNCs that are going through their pay correction cycles now and a lot may change by the time India-headquartered companies start planning

for their next cycle. However, there is probably an even bigger problem to solve than FY23 increments. The key question is which sectors will drive job creation. The technology sector, particularly IT Services and related businesses, have largely taken care of this for long. With the outlook for incremental hiring in these sectors expected to be foggy, who do we pass the baton to? The technology industry exists to drive efficiency, user experience and cost optimisation. Slowdown or not, these skills will continue to be in demand. But are we on the verge of a passage of time where increments exceed long-term job growth?

(The article has been penned down by Anandorup Ghose, Partner, Deloitte in Human Capital Consulting exclusively for BW People publication)

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