Consulting firms Aon India and Deloitte India said companies are facing challenges to address high attrition rates or risk denting the bottom-lines to retain and hire employees.
“There is a gradual realization that growth capital must be more carefully invested by businesses, given some degree of tightening in capital markets as well as general industry," Anandorup Ghose, partner, Deloitte India, said in an interview.
Aon expects manufacturing, automobile, engineering and fast-moving consumer goods companies to adjust bonuses. “High input costs will force the companies to reduce the budgeted bonus by 15-20%," said Roopank Chaudhary, partner, Human Capital Solutions, Aon India.
The development comes at a time the industry was expecting generous bonus amounts after two years of covid, However, firms are now considering to stitch in stock options or pay cash bonus only to exceptional and integral performers.
Information technology, IT enabled services, pharmaceuticals and e-commerce will, however, be forced to offer high bonus because of record high attrition at a time they need manpower even if it impacts their bottom lines.
Aon and Deloitte’s warnings come in as increasing inflation is not only affecting spending power of households, but also hurting companies as wholesale prices are rising at a much faster pace than retail prices.
“Companies face a conundrum. At one level, inflation has pushed up costs and unless costs are managed, demand and growth can suffer. At the same time, employees are also demanding higher pay, given the high cost of living," Ghose added.
Inflation is hurting household budgets, especially in rural markets, and prompting companies to tighten belts, said Saugata Gupta, managing director and chief executive officer, Marico Ltd.
According to a Reuters’ poll, India’s retail inflation is likely to have reached an 18-month high in April, driven by rising fuel and food prices, to stay well above the Reserve Bank of India’s upper tolerance limit for the fourth consecutive month.
However, most firms may not cut increments “yet" which have been budgeted as it may lead to higher attrition.
“Salary hikes are not getting reduced yet, partly because a large segment of companies is already through with salary hikes (most multinationals follow the January-December cycle) while many companies follow the April-March cycle," Ghose said.
According to Deloitte, India Inc. is expected to roll out a 9.1% hike in 2022, while Aon expects 9.9% increment—the highest since 2016. “The hikes are coming after two years and if they don’t meet the inflation percentage, retaining employees will be difficult," Aon’s Chaudhary added.
However, some experts said the days of high salaries are over. “There is awareness that the current job market has overheated to a point where it will have to cool down very soon," said Ghose, adding that there will be “gradual scaling down in salary hikes when employees change jobs.
