The average salary increase this year would be 8 to 10 per cent, according to salary surveys. But news reports talk about IT talent getting 50 to 100 per cent hikes from their new employers when they jump jobs — and there has been a fair bit of movement. 

This is why all well-intended calculations in salary circles seem irrelevant, and the compensation templates do not seem to be working.

Affordability

The compensation and benefits head of a large IT services company told me, “We gave almost 12-15 per cent average raise last year, this year it will be about 8-10 per cent average hike. Anything beyond this is not sustainable”.

This affordability philosophy has always been debated as employees argue that enterprises pay hikes of more than 30-50 per cent for new joinees and ask the existing lot to be grateful with 10 per cent. How do you evaluate this affordability? Profits, Budgets? The incoming talent always arrives at a premium which one can see in the salary cost increases on the balance sheet of many firms.

Shouldn’t the employers calculate this cost of transition and address the pay parity issue internally rather than focus on hiring high-cost talent from the market? These are questions exiting employees are asking as they refuse to buy the affordability excuse of employers doling out incremental pay offers (IPO) .

Attrition

It’s not just an Indian phenomenon. The latest Jobs Openings & Labour Turnover Survey (JOLTS) published by the US Department of Labour shows similar trends. As per JOLTS, in March about 4.5 million people quit their jobs in the US, the highest ever exit. The common trend there too is that attrition in the professional and business services space is rapidly growing at the rate of about 3 per cent a month. In India, the attrition is even higher in some niche skills like data science.

According to the latest study published by Analytics India Magazine, attrition of data engineers in the BFSI space was 38.5 per cent in 2021. In the past, many of us talked of things like ‘good attrition, who leaves matters more than how many left’ and so on. But now it’s a dire case of both ‘who left’ and ‘how many.’ Can we ignore either? Maybe, our colleagues are seeking corrections and not increments!

Increments

Perhaps it is time to reflect on how organisations have traditionally approached increments. We all know there is always a budget for annual raises, and one way or the other, that amount gets distributed amongst the racehorses, average performers, and the also-rans. Every role’s performance cannot be measured in a quantifiable way, and the supervisor’s discretion will eventually take precedence, and we all know that’s where the heartburn starts.

I believe that organisation performance, team contribution and our individual results must be in sync for us to get more than the inflation-related hikes that companies dole out. Any one of them not aligning makes it a complex situation where manager subjectivity and the related bias takes over.

Skill and role

Thanks to the buoyant market, the benchmark of salaries has radically shifted from the salary surveys, employers’ narratives, performances, and budgets. The talent starved market is forcing employers to pay for the skill and role, allowing employees to judge their current external value. For example, on average, a full-stack developer gets more than 10-12 new job calls per day.

How do you expect them to continue working in their current jobs when there is a lucrative shopping mela played out on their phone every day? There is also this perceived notion that this buoyancy could be seasonal, and the time to board the money train is now. Hence, despite some of the best increments in recent times, employees still believe the better opportunity is outside. Even though there are risks, they would rather try now than regret later.

People who are staying back are also demanding that the organisations pay for the role and the skill for them to continue and are declining the incremental pay rises. This forces employers to think beyond their employee’s current performances and focus on the role’s value.

We presented the salaries for a new hire to an IT product company. The hiring manager said: “I would rather pay my current employee on notice this higher salary and keep her than pay this extra money to an unknown employee. I hope I will have the psychological edge of meeting her expectations and not lose the IP she carries with her. I am tired of training new employees. That’s an additional cost,” he concluded.

Enterprises dilemma

On their part, organisations have climbed down from their high horses and have been more generous in the last two appraisal cycles compared to the past. However, this gradual financial movement is not sitting well for a large set of leaving employees. Trying to counter the money war by intangible things like purpose, high touch, hybrid work options, offsites, and LnD initiatives has limited effect.

So far, all these have had the effect of bringing a knife to a gunfight. Can enterprises take their shareholders into confidence and take a one-time hit on their balance sheet to correct salaries? Many enterprises have reported record sales and profits and may have leeway for some of that.

Right now the stock market is on the downhill across the world and can’t punish companies beyond what’s already happened. But should we be a little more generous and keep our racehorses to win more races?

We can turn pessimists and complain about the departing employees or be optimistic and wait till the talent supply meets the demand. But maybe, some of us can adjust the sail. The choice is ours!