Indian companies are in recovery mode: Optimistic on hiring and salary increases

Business and human resource leaders around the world face serious workforce challenges and a road map fraught with constant change and wrenching decisions, however the situation is not the same for every country. As such, Mercer launched the ‘India Leading through Unprecedented Times’ survey in conjunction with CII in order to better understand the implications of the current global economic situation on people practices in India.

An extension of Mercer’s global ‘Leading through Unprecedented Times’ survey, the study explored the impact of the economic downturn on talent management, compensation, and benefits, as well as employee concerns and the HR function. The study received 87 responses with more than 70 per cent from key decision makers such as CEOs and full-time directors. The new survey updates a global survey Mercer originally conducted in November 2008 and then again in May this year.conducted from May 12-29, 2009. It includes responses from more than 2,100 organisations representing employees and operations in over 90 countries worldwide. The results of the two studies were compared to identify the differences in strategy between companies in India and the rest of the world. There are signs that deep workforce, pay and benefit cuts are moderating as businesses budget for the remainder of 2009, said the survey. The objective of the survey is to evaluate current state of human capital practices in India and compare and analyse responses against Mercer’s recent global survey results.

While the findings reveal continued actions taken by companies to relieve cost pressures—workforce reductions, salary freezes, reduced contributions to retirement plans and increased costs for health benefits—equally notable is the fact that organisations generally are not taking action in response to the economic downturn such as cutting pay and eliminating benefit programmes altogether. The findings also clearly show that the economic downturn has impacted certain countries and industries less fiercely than others. The study reveals a growing optimism among Indian companies, with 52 per cent of respondents saying they expect financial and business performance to increase in the latter half of 2009. Most Indian companies who participated are focusing on organic growth, with only 15 per cent actively looking at merger and acquistions.

Talent management

Some 58 per cent of organisations worldwide plan cuts to their workforce in the remainder of 2009 compared to 66 per cent that implemented workforce cuts in the six months prior to the survey. Significantly, however, only 5 per cent of these organisations plan deep cuts (more than 10 percent of staff) in the remainder of the year, compared to 13 per cent that made such cuts in the six months preceding the survey.

In India, 58 per cent of the respondents are less likely to make drastic workforce reductions. Many are optimistic that they will soon be able to hire at pre-downturn rates, with 31 per cent saying they will be recruiting at originally planned levels for the rest of the year, compared with only 12 per cent of global respondents. While this number bodes well for economic recovery, it also means the return of the war for skilled talent in India Padma Ravichandar, Managing Director of Mercer India commented, “In the short term many organisations might have had to tackle people costs, most notably with wage freezes and in some cases retrenchment, however with the recovery around the corner companies seem to be taking active steps to manage and retain their key talent in an effort to be ready for growth opportunities once the upturn comes about.”

Despite the impact of the weak economy, many companies remain focused on their most valuable employees. More than one-third of respondents (31 per cent) say they will continue to hire key talent and workforce overall. Approximately another third of organisations (37 per cent) plan to hire talent to replacement levels only, while 28 per cent expect overall workforce reductions and 2 percent expect to reduce workforces in 2009.

The study also shows that organisations are beginning to use or consider alternative work arrangements to control workforce costs. Companies are looking at changing staff mix and sourcing local talent for roles held by expats in some industries. They are also looking at reduced travel and employee mobility.

According to Chandrajit Banerjee, Director-General of CII, “There are signs that the economy will point upward again. Companies should focus on understanding what employee requirements are, and have strategies to manage them once the economy is bullish again.” He further added, “ The survey clearly showcases that the business sentiments in India is more optimistic than our global counterparts and this will play a pivotal role in our talent market and practices as well.“

Compensation

Organisations globally are almost equally divided on whether their 2009 base pay budgets will be more than their 2008 budgets (31 per cent), equal to 2008 budgets (33 per cent) or less than 2008 budgets (36 per cent).

In the past six months, only 18 per cent of Indian participants froze salaries at 2008 pay levels for at least part of their employee population; while 38 per cent froze pay enterprise-wide. Just 16 per cent deferred 2009 pay increases and even fewer (4 per cent) decreased salaries from 2008 levels. For the remainder of 2009, 41 per cent respondents are planning to make 2009 pay increases as planned.

Padma said, “While this is a solid sign of economic recovery in India, it is not reflection on the actual quantum of salary increases to be implemented. It is yet to be seen whether those companies planning to raise salaries in 2009 will award the 10 percent year-on-year norm that people in India have previously enjoyed.”

Regarding annual bonus payments, 39 per cent of organisations globally awarded smaller bonus payouts for 2009 (based on 2008 performance) compared to 2008 awards (based on 2007 performance) and 28 per cent granted higher bonus payments in 2009 compared to 2008.

“As a result of the economic downturn and current labor market conditions, organisations are moving away from pay based on market competitiveness, instead focusing on internal affordability,” Padma observed. “Companies need to be careful not to stray too far from market rates of pay or they may find themselves at a significant disadvantage when the economy improves and the labor market becomes more balanced. Employee concerns about growth prospects and promotions can be addressed with an increased focus on providing learning and development opportunities and building a credible leadership pipeline. Scaling back investments in people development more often than not prove counterintuitive.” She continued, “While companies are adjusting their compensation programmes in response to the economic crisis, cost is not their only focus.

Managing workforce levels and keeping employees engaged, motivated and productive is also a top priority.”

According to Mercer’s survey, promotions top the list of employees’ concerns—38 per cent of organisations said employees expressed significant concern about their promotions in 2009. 32 per cent of respondents said employees expressed significant concern about the how the economy is impacting the overall organisation. Employment and job stability as a concern was highlighted by 37 per cent of respondents.

Trends seen among the firms

* Indian companies are less likely to consider retrenchment as a means to cut costs compared with global organisations.

* Hiring will return to normal levels towards end of 2009, signalling a return of the war for skilled talent.

* Increasing use of innovative incentive instruments being implemented to retain key talent in place of salary hikes.

* Companies are reducing employee mobility and travel as a means to control HR costs.

* Indian businesses set to implement regular pay revisions and inflation corrections before the rest of the world

Source: Mercer-CII survey