If you thought last year’s pay hikes were bad, wait for this year’s

Slowing corporate earnings, which have led to constrained budgets, as well as lethargic economic growth have pushed firms to become even more tightfisted than last time, consultants said.

With the post-pandemic hiring mania easing off, companies’ focus has moved away from hiring at any cost to retention of top performers. Some startups are even offering incentives like exclusive credit cards to keep top talent happy.

Even there, there’s a twist. Roopank Chaudhary, partner at human capital solutions for consulting firm Aon, said that a relatively smaller pool of employees would be rated high compared to previous years.

“Given the weaker global business sentiment and also the headwinds being faced locally, companies are likely to give marginally lower increases than what we had seen last year,” said Chaudhary.

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Aon’s Annual Salary Increase and Turnover Survey 2023-24 had estimated an average 9.5% hike in 2024 across 1,414 companies versus an actual increment of 9.7% in 2023. However, the actual hike rolled out was around 9.3% and the projected one in 2025 may be lower, Chaudhary said. Another estimate, from Mercer’s Annual Total Remuneration Survey, predicts 9.4% overall salary increase across industries in India for 2025 versus estimate of 10% last year.

The highest increment in the past seven to eight years was in 2022 when increments averaged 10.6%, according to Aon.

Companies across sectors work with consulting firms to estimate salary budgets for their employees and get a peek into what their rivals are rolling out.

According to Anupam Kaura, chief human resource officer of Kotak Mahindra Bank, hikes in the banking sector are expected to be a notch lower than last year because of credit pressures.

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Credit growth in the banking system has been moderating over the last few months on account of slowdown in personal loan growth after RBI tightened norms last year. On a year-on-year (y-o-y) basis, growth in bank credit as on the fortnight ended 27 December 2024 moderated to 12.4% as compared to 15.8% for the corresponding fortnight of the previous year.

“As per Aon’s forecasts, [the hikes] could range in the 8-10% grid, while last year the average was closer to 10%,” Kaura said.

The HR head of a rival bank, who spoke anonymously, said the hikes at his bank would be around 12-15% for top performers and 7-8% for those who fall in the middle performance bracket. The average was marginally higher for the private lender last year.

Many reasons

To be sure, consultants have highlighted that when the absolute pay levels were lower, the percentage hikes were higher, but as the base salaries have increased, the percentage of hikes have inched down in many sectors.

“Also, many companies are seeing total payroll cost increases trending higher than revenue growth and, therefore, greater need for caution,” pointed out Anandorup Ghose, partner at consulting firm Deloitte India. Ghose advises on rewards, compensation structure across India Inc.

Over the past couple of years, as hiring across sectors has slowed, both normal increments and salary jumps during job changes have crimped.

However, hikes while changing jobs will remain consistent or even get better for those with skill sets that are in demand such as advanced cyber security and data analytics, according to Pranshu Upadhyay, regional director for search firm Michael Page.

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“India Inc this year will be witnessing a slightly lesser salary hike as compared to last year on account of increased focus on operational efficiency and impacted earnings across,” Upadhyay added.

Focus on the best

At the same time, companies are going to focus more on their top talent which until now would get 1.6x-1.7x the increment of the average performer.

“We expect the differentiation to remain similar or go a notch higher since the average salary increases will come down and, as such, employers will need to have sharper differentiation to ensure higher payouts for top performers, albeit with lesser budgets,” Aon’s Chaudhary noted.

Companies in India’s bulging startup ‘industry’, which both recruited and lost key employees over the past two to three years, is working out various combinations to attract and retain key employees.

Bengaluru -based product innovation startup Thence told Mint that it offers variable pay along with employee stock ownership plans (Esops) and stock appreciation rights (SARs) for senior roles to align incentives with revenue performance and protect margins.

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Other startups are looking at a rewards system to retain them. “To support our leadership team, we now offer American Express corporate card incentives for our top CXOs,” said Nihar Kolapkar, co-founder at Wit & Chai, a marketing startup. “We are investing in courses and skill-building programs for our team, ensuring they stay ahead in a constantly evolving industry.”

According to Ghose of Deloitte, the scrutiny on performance has improved both with “greater availability of data with managers, as well as increased maturity of the performance management processes”.

Amongst established business houses like RPG Group, high-potential employees’ performance will get plotted not just against their stated responsibilities but also in live cross-functional projects.

“We benchmark our average hikes based on market and industry trends and rewards for top talent will always be at the upper 20% of our increment spectrum,” said Supratik Bhattacharyya, chief talent officer at RPG Group.

Meanwhile, automobile major Tata Motors said there have been no changes made to the appraisal system this year. “Like every year, employees will be rewarded with higher performance pay as an acknowledgement of their significant contributions to the overall growth and improvement in the financial performance of the organization,” said the company in an email response to Mint.

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