The overall people costs would rise by a modest 12% in FY24 and that of Indian companies are likely to be higher than their multinational corporation (MNC) peers. This fiscal is likely to be a year of consolidation, with fixed costs rising more slowly and being replaced by variable, performance-driven pay-outs, according to a study by IMA India.
The big increase in people costs over the last two years, which were led by sharp pay rises and a surge in hiring, are starting to temper. The overall people costs had risen by 15% in FY23, ‘The 2023 CXO Increments Survey Report’, said.
These numbers are consistent with mounting signs of a generalised slowdown in hiring, and in industries such as IT, this is linked to largescale layoffs. They are also in line with slowing increments, at least in terms of fixed salaries.
Indian companies are also expected to post sharper year-on-year drops in people costs. The services companies saw people expenses rise by 15.9% in FY22, which dipped to 12.4% in FY23, while that for industries were 12.4% and 11.4%, respectively.
According to the report, retail-services, consumer durables and IT and ITeS captives all expect a 5-7 percentage point fall in FY24, while resource-based industries are projecting a mild rise.
In FY24, businesses – across most industries and levels – would offer smaller increases in fixed pay. For instance, the fixed pay of CEOs is projected to rise by an average of 9.8%, down from 10% in FY23. The average fixed-pay increment for most CXO positions will be a shade or two under 10%, but for specialist positions – those heading the risk, legal, sustainability, growth and supply-chain functions – it is projected to be at or under 9%.
However, the total cost-to-company and increments will generally accelerate in the coming year, for instance it would rise to 12.4% from 11.7% for CEOs. The average gap between increases in fixed-pay and increases in CTC will widen, and for CEOs it would move from 1.7 percentage points in FY23 to 2.6 in FY24.
This strongly suggests that variable pay as a share of the total will go up, it said.
The CXO (top executive positions in a company) pay is often thought to be driven by business performance, but the respondents said the highest weightage in deciding increments is based on individual performances.
However, at the CEO and CFO levels, the company performance matters. Among companies that give a high weightage to business performance, there is a strong and positive correlation between revenue and net profit growth on the one hand and increments on the other, it added.
Company performance comes next, followed by leadership ability. Adding up these two, the implication is that individual delivery accounts for a disproportionate share in pay decisions.