Prosperous times

With corporate profits growing rapidly, it should be no surprise that salary increases have remained at close to three times inflation rates. Capacity utilisation in most industries has been nearing its limits, and many companies have announced expansion plans and new ventures. The upshot has been a rise in demand for workers.

This is reflected in India Inc's rising salary bill. A Business Standard study shows that, on a year-on-year basis, salaries have risen by 11.11 per cent in the June quarter. This is slightly more than the growth rate in the March quarter, but the rate of growth has been decelerating since the 15.5 per cent rate notched up in the June 2004 quarter.

Earlier this year, the Ninth Annual Salary Increase Survey, conducted by global outsourcing and consulting firm Hewitt Associates, concluded that last year's annual salary increases in India ranged between 9.1 per cent and 14.9 per cent.

Interestingly, the survey found that the biggest salary increase was at the professional, supervisory and technical level, with the smallest rise at the manual worker level. Salary increases for top management and other managers were lower than for technical workers.

There's little doubt that the level of salary increases is a reflection of the shortage of skilled workers across sectors. For instance, the Business Standard study shows that salaries in the information technology sector have grown the most""around 36 per cent y-o-y.

That's clearly because of the huge demand for skilled workers in the IT sector, and because IT services are labour-intensive. In contrast, the tepid rate of salary increases in the manufacturing and capital goods sectors reflects the fact that much of the work in these industries is automated.

The Hewitt study too found that the IT sector had the biggest salary increases in 2004, followed by the entertainment/communications/publications sector and by IT-enabled services. As a matter of fact, the rising wages in the IT and ITeS sectors have sparked off a debate on whether India will soon lose its edge as a low-cost destination for offshoring these services.

While the studies do not show it, it's also true that it is the experienced personnel who have got the highest salary increases. That's because experienced people are relatively scarce compared to freshers, who are churned out in large numbers by colleges.

Also, as companies move up the value chain to more value-added work, domain expertise becomes crucial, and this comes with years of experience. This has become especially true in sectors that have seen extraordinary growth in recent times.

For example, the proliferation of airline companies has led to an urgent demand for more pilots, with the result that salaries for pilots have gone through the roof.

The same holds true for professionals in the capital market""with the market reaching new highs, the demand for equity analysts, equity salesmen, fund managers and other market professionals has increased exponentially, and so have their salaries. Similarly, the proliferation of TV channels and newspapers has led to sharp increases in the salaries of media professionals.

These trends throw up challenges for managers in all organisations. At one level, efforts must be made to ensure that the rise in salaries is commensurate with the rise in revenues, or businesses suffer. On the other hand, in the worst-affected industries, employee attrition has become a fact of life and needs to be carefully managed.