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Rediff.com  » Business » Time to say goodbye to bonus, promotions?

Time to say goodbye to bonus, promotions?

By Business Standard
July 10, 2008 10:28 IST
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It does not come as a surprise that ICICI Bank has slashed the performance bonus for its senior management for the last financial year.

India's largest private bank has also announced that it will skip promotions and cut bonus payouts for the current financial year as well. The bank has also given only a moderate 8 per cent increase in salaries.

To its credit, ICICI Bank had read the warning signals earlier than most companies. In the process, the bank has gone against the conventional wisdom that the great Indian salary boom will continue despite the slowdown. After all, many global consultants have projected that Indian employees will continue to bag the biggest salary increases, at an average of 15 per cent.

A Hewitt survey also showed that the traditional gap between salary hikes offered by locally-owned and multinational companies has closed, with Indian private sector companies projected to raise salaries by 15.5 per cent in 2008, compared with 14.9 per cent offered by multinationals.

The high salary game perhaps made sense when there was an economic boom. Now as a slowdown looms, it makes sense for all companies to take a leaf out of ICICI's book and to do a reality check on the quantum of salary hikes required, and to benchmark that with productivity goals. For example, for a bank with a large retail portfolio, the thumb rule is that the wage cost should not exceed 15 per cent of total revenue.

Many companies have now taken the cue from ICICI and reduced their salary hikes for this year. IBM India has withdrawn the free-housing facility recently and Oracle gave an average salary hike of 7-8 per cent, compared to 12-14 per cent last year. A host of other companies have frozen recruitments at the higher level or have become choosy about the kind of people they hire, which itself is a sea change from the earlier practice of recruiting anybody with a pair of hands.

Besides, high salaries do not necessarily correlate with employee satisfaction. According to an IDC survey, while TCS ranked fourth in satisfaction with salary, it was 13th in its ranking on the basis of average salary paid. Infosys ranked 12th in the salary payout, but 28th when it came to satisfaction with salary.

BarringĀ  a few sectors such as biotechnology, insurance and media, where a bunch of new players is still waiting to come in, the only option left for companies now is to divert some of the savings in their salary budgets to improve training.

Organised training is the only other solution - and, it is a cheaper alternative to hiring from a few premier institutes where salary expectations remain sky-high. Companies such as ICICI and Infosys have led the way in this regard by tying up with scores of educational institutes all over the country.

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