Local staff the flavour of cost-cutting season with India Inc

Written by Malvika Chandan | New Delhi, Aug 27 | Updated: Aug 28 2008, 06:55am hrs
Indian companies are looking for ways to reduce costs by hiring local staff and cutting down the stints of employees overseas. So says a Mercer Consulting survey released on Wednesday, on how India-based companies are handling salary packages of employees sent abroad.

The move is in sync with the increasingly somber salary projections being made by headhunter companies and HR consultancies as Indias rate of growth of GDP slows down somewhat from 9% in 2007 to about 8% in 2008.

When Hewitt Associates conducted their annual study of 600 companies in February, average salary increases for 2008 were pegged at 15.2%. The GDP outlook at the time was between 8-9%. That story has undergone a slight modification now. As part of a mid-year dipstick done of a sample of 150 large corporations of the 600 companies by Hewitt in August shows that projection has been scaled down to 14.8%.

The Hewitt study is in line with the Mercer study done in June 2008, which also said India is likely to witness about a 14% increase in salaries annually, for the next three years. On the brighter side, the Mercer survey shows, India, Vietnam and Indonesia are the only three countries in the Asia-Pacific region that are likely to see a double-digit increase in salaries until 2011.

Speaking about the trends with FE, Sandeep Chaudhary, leader of Hewitts Rewards Consulting Practice in India, said the mid-year survey was conducted as a response to anxiety expressed by organisations about inflation, stock market volatility and lowered GDP outlook.

Organisations are faced with a double-edged sword, wherein they need to be cautious about costs due to increase in expenses and slowing growth and on the other side scarcity of quality talent is requiring organisations to be innovative in finding and retaining the right people.

Just sample the changes, year on year. Retail saw a 17.6% salary increases in 2007, that has come down to 13.6% in 2008; ITeS scored a 15.4% rise in 2007 but climbed down to 12.6% in 2008, expected to go down further to 11.4% in 2009. A down turn in USA, inflation and policy stasis are the ones that impact the sector. These are the high employment potential sectors but they are also the ones most affected by the slow down. The more sedate, infrastructure, manufacturing and telecom sectors will continue to give their employees over 15% increases in 2008 and 2009, the report said. But these are far ahead of Western Europe or the US in terms of salary movements, Chaudhary of Hewitt said, UK, France, the US and Australia had an average salary increase of only 4% this year.

And the result, job seekers are now far less actively scouting for changes. They plan to stick it out for another year until the economy stabilises. Avneesh Raghuvanshi, Partner at GKR Daulet-Singh a search firm headquartered in Delhi, says, Earlier, job seekers were expecting 20-25% increases when looking at a career switch, now a more moderate 10-15% increase is acceptable, as long as there is career growth. As compared with a year ago, job seekers are noticing that the numbers of opportunities are fewer and they are accepting even single digit increases for better career prospects.

Hewitt said it did not expect a radically different outlook from the 13th annual salary survey they will do next February with a larger pool of organisations. The participating companies though would have more data points on overall performance at the time, as they would be announcing their 4th quarter results. Following suit on the mid-year dipstick initiated by Hewitt, other HR consultancies will also be declaring revised salary outlooks in the weeks to come.

While companies are becoming cost-conscious, cutting salary is not the first measure they are resorting to, says Chaudhary. Their first attempt is to reduce hiring costs and increase productivity.

Companies are seeking to manage talent supply better and are a bit anxious of their top performers being more vulnerable to the market. Attractive salary packages that encompass financial instruments like ESOPs and other long-term incentives along with a fulfilling employment relationship that promises growth and cutting-edge work content would be the order of the day.

The Mercer study lists key challenges as, competitiveness of expatriate packages, issues with different tax structures and of overall cost containment, says Gangapriya Chakraverti, business leader, Information Product Solutions for Mercer India. As much as 44% of companies in Mercers survey compensate their international assignees for tax differentials.

The survey further indicates that the most common destinations for international assignees are South East Asia, Western Europe and North America. Corporate Indias salary concerns can also be seen reflected in graduate students entering the workforce. In a global survey done by Accenture in June 2008 across 8 countries including the BRIC nations, 63% of university students worldwide expressed concern that the weakening economy will affect their job search, in India though 46% of the students surveyed revealed a similar concern. 36% of the university students surveyed said they were willing to accept a lower salary given the slow down. Our Global Graduate poll, conducted with about 2500 students from the Class of 2008, indicates growing employment concerns due to the weakening economy - about 2/3 rd indicated mild-high concern. The average student expects to take 3-6 months after graduation to find a job, says Deepak Malkani, Partner, Talent & Organization Performance, Accenture India.

Malkani adds, Interestingly, Indian students show more long-term career orientationthey are more willing than their global counterparts to trade-off salary, with more interesting and challenging work and getting global experience.