Fortune Favors the Fittest

To Sum Up
As companies manoeuvre a complex economic environment with increased political risks and uncertainties, regulators are stepping in with increased scrutiny and compliance norms. Companies naturally seem to be reacting with some level of caution - the high salary growth years seem definitely behind us for now as shareholders have also increased the debate on pay. Performance is the key word and more compensation necessarily will come with significant performance expectations.

Looking Ahead
The equation on the surface seems simple - sluggish business growth, rising inflation, squeezing margins and continued political and global economic uncertainty should lead to a reduced pool of salary increases being projected by India Inc. But economic wisdom seldom has all the answers, as we have seen.
Organizations are working through a myriad set of factors, from external benchmarks on salary increase trends, business performance, affordability parameters and impact of macroeconomic factors, especially high inflation rates while deciding this number on salary increases. In the face of these observations, we can expect to see the following rewards strategies being adopted by organizations in 2014:

• We expect organizations to closely monitor the macroeconomic developments and competitive activities over the course of the next few months. An optimistic approach on salary increases can be expected, should the Indian economy display definite signs of growth, which is what the popular sentiment seems to be in the wake of the new stable government taking reins
• With limited compensation budgets, employers perceive a higher risk of losing critical talent. Thus, the rewards gap will continue to widen to embed and showcase recognition and differentiation to top performers
• Increasing usage of variable pay with moderated salary increases will begin to represent the 'new normal'. An aggressive pay mix, with approximately 24-26% of total pay for top executives, down to 10-11% even for officers apportioned towards performance-based pay, could drive motivation for employees to be productive and provide employers with greater flexibility to compensate based on individual and organizational performance
• It will be important for compensation managers to provide strong business justification to increase payroll costs in a situation where the revenue line might not be growing and the cost base could be subject to inflationary pressures. Double-digit increases can continue so long as organizations can maintain ratios such as compensation cost as percentage of revenue, i.e. increases supported by growth in revenue or profits

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