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Total Rewards Quarterly

Home Resources Total Rewards Quarterly Vol. 7 | Issue 3 Aon's Salary Increase Survey

Aon's Salary Increase Survey

India’s Business Outlook

India’s economic growth is projected to be strong and will remain one of the fastest growing G20 economy. While confusion over the new
procedures and how to price products have resulted in a slowdown, however, the blip in momentum is expected to be short-lived overall.
per IMF’s World Economic Outlook Update, India’s growth is projected to accelerate to 7.7 % in 2018-19, from 7.2 % forecasted for 2017-
Under such circumstances, India Inc. continues to project encouraging signs on business performance. This is being reflected as 63% of
organizations project an 'Improving' outlook towards business whereas 32% project it to 'Stabilize' over the coming year, an increase of 5
vis-à-vis last year. A similar level of optimism is also reflected across both manufacturing and services organizations.

India Salary Increase Budgets

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With mixed signals emanating at a macroeconomic level as well as the question of sustainability of double-digit salary increases, India In
adopting a conservative yet positive approach in rolling out annual salary increases. This positive trend is a reflection of the fact that
organizations, both from the services and manufacturing sectors, are optimistic about business performance. Despite, single-digit increas
India Inc. continues to pay the highest inflation adjusted salary increase across APAC countries. Over the years manufacturing firms in In
have come of age in budgeting salary increases resulting in single-digit (9.8%) for the first time since 2009. Services continue to be behin
manufacturing at 9.4% but the gap is minimizing.

Salary Increases by Levels of Management

Similar to previous years, the junior management continues to report the maximum salary increase as compared to other employee
segments. Across levels there is a minimal but positive optimism in terms of salary increases projected for 2018 which echoes the overal
India Inc. story. Top and senior management salary increases continue to be below the India average. The growing prevalence of 'Pay at
– Variable Pay and LTI' at these levels can be attributed to the lower fixed increases. At top and senior management, the variable payout
2016 as a percentage of 'Total Fixed Pay' has been reported as 23.9% compared to an overall payout of 15.3% across employee segmen
A greater correlation between individual and business performance at executive levels is primarily the reason for such high variable pay
numbers

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Salary Increase Projections — 2018

Professional services firms, which were flooded with work during the changeover to the Goods and Services Tax (GST) regime, are expe
to lead the way with the highest salary increases, projected at 10.7%. This is then followed by life sciences (10.6%), automotive/vehicle
manufacturing (10.4%), consumer products (10.3%) and entertainment/ Insights from Phase 1 communications/publications (10.0%)

The bottom five with respect to projected salary increases in 2018 include hospitality/restaurants/travel (8.9%), engineering design (8.8%
cement (8.6%), banking/finance (8.6%), and transportation/logistics shipping services (8.6%).

The Indian pharmaceutical industry, which was until recently witnessing a dream run, has found itself amidst multiple business challenges
While regulatory headwinds and pricing pressures persist, slumped growth from the US market has further added to its woes. Not
surprisingly, the projected industry growth is down to single-digit from its erstwhile mid-teen range. On the bright side, the sector is witnes
a gradual shift towards innovation, focused consolidation and footprint expansion in emerging markets, beyond US and European Union
(EU).

Looking from a rewards perspective, the sector continues the legacy of being one of the front-runners in the overall salary increases. The
2017 average total salary increases across all employees is 10.7%, with Indian MNCs leading the pack. However, notably, the salary
increases have gradually dropped by 1.3% over the last two years with some organizations projecting muted salary increases, to factor in

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negative business results. This decrease is in line with the overall industry sentiment as highlighted in the table below.

While the salary increases are gradually slowing down, organizations are increasingly focusing on differentiated rewards practices. One s
notable trend being observed is in the sphere of rewards communication. There is an enhanced transparency, with majority of the
organizations communicating key elements like rewards philosophy and salary increment process to all cadres of management. Additiona
organizations are using Frequently Asked Questions (FAQs) document The ABC of Childcare Support Program Trend Check on existing
policies to create awareness amongst the employees – Further taking a deep dive, the top 3 nonmonetary rewards communication that
emerge are:

1. Benefits
2. Career/Learning & Development
3. Rewards & Recognition

It’s worth a mention that some of these specific rewards insights came out of our recently concluded flagship Pharmaceutical Forum
roundtable discussion. The Forum serves as a unique platform for leading pharmaceutical organizations for interacting and sharing thoug
on their HR model and emerging rewards needs. This year, as a part of the Forum, we had the privilege of inviting Dr. Suresh Menon to h
his views on the current business scenario. Dr. Menon is the Chief Scientific Officer at Novartis India and has been associated with the In
pharmaceutical industry for close to three decades. In addition to being the Co-Chair of the Medical Committee of Organization of
Pharmaceutical Producers of India (OPPI), he is also an Executive Committee Member of the Indian Society for Clinical Research (ISCR
Summarized below is an excerpt of his responses on some of the relevant business issues.

Q. Will regulatory headwinds (increased oversight, stringent manufacturing norms) b

A. Regulatory challenges should not be an issue as long as the industry focuses on consistently maintaining and meeting the desired qua
standards. For India, there has been a positive change including the government aiding the process of regulatory filings by creating an on
portal which accelerates the review and approval process.

Q. With pharmaceutical organizations increasingly focusing on complex molecules,

A. Approximately 12-15% of Tier 1 organization revenue is being invested on research as this industry is heavily dependent on it. The life
of the pharmaceutical organizations depends on their ability to launch new drugs. While reverse engineering is the strength of Indian
organizations, there is a paradigm shift in the way organizations approach this today. There is targeted investment in product developmen
with growing focus on developing biosimilars/biologics. Additionally, drug discovery process has gradually evolved over the years. A nota
trend in this respect is the strategic alliances/ partnerships wherein organizations buy drugs in early stages of development to improve the
pipeline.

Q. How do you think the talent acquisition strategy has evolved in the Indian
pharmaceutical industry?

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A. Organizations must be open to looking for talent from diverse industries. Earlier, hiring talent for leadership positions from cross-indust
was seen as a taboo and organizations were even particular in ensuring relevant therapeutic domain expertise. Increasingly, organization
have started hiring people from diverse industries like FMCG, telecom, IT, etc. Thus, talent pool for the industry has expanded. However,
evolution is currently visible only at higher levels of the management. Additionally, skills are undergoing a change in the industry. For
example, while hiring a talent for medical affairs, organizations need to hire a person with a commercial mindset as well. A pure scientist
not work for the industry.

Q. While multiple business challenges persist what is your outlook on the overall
Indian pharmaceutical industry?

A. Outlook continues to remain positive. As long as organizations are investing in innovation and focusing on quality, there should be no
issue with the growth of the industry. Overall, government policy should only be balanced and rationale. This alone will be the critical ena

In the light of the above discussion, it is evident that the Indian pharmaceutical industry is at a critical inflection point – what is notable is t
concentrated efforts being made by the organizations to pointedly address these business challenges and resulting talent implications. W
on our side, will continue to keep our finger on the pulse.

Nivedita Srivastava
Senior Consultant,
Aon

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