Future of Pay: Rebalancing the total rewards structure

In 2022, the global economy experienced relatively slower growth, but India's steady economic expansion in the first quarter of the fiscal year 2022-23 propelled it to becoming the fifth-largest economy in the world, surpassing the UK^[2]. 

India's economic growth trajectory has created a dynamic and rapidly evolving talent market, influenced by global economic patterns, technological progress, and evolving workforce expectations. There is considerable demand for talent, particularly in fields such as technology, healthcare, and manufacturing. As a result, certain industries are facing a dearth of skilled talent, leading to salary inflation and an increased number of job openings.

As the Indian economy expands, to attract as well as retain high-caliber individuals, companies are prioritizing employer branding, benefits, and retention strategies. With the right talent, organizations can be in a position to compete and take advantage of new opportunities. Exceptional employees possessing critical skills and a track record of high performance are being compensated at a premium of 1.7 to 2 times^[1] that of the average employee. This, along with some other trends are expected to play out in 2023.

In the face of these developments, the EY Future of Pay report spotlights total rewards trends developing in the market marked by employers’ shift in focus from providing disproportionately large salary increases to investing in their employees through incentives, new-age benefits, and by building comprehensive Rewards Value Proposition (RVP).

Salary increase trends

Compensation continues to be on the rise despite global slowdown and layoffs by multiple companies. The overall salary increase in employee categories is expected to be at 10.2%(Projected) in FY’23 as compared to 10.4% (Actuals) in FY’22^[1]. Though there is a decline of 20 basis points, but the projections still remain strong and in double digits.

There is a clear focus to retain the skills in demand. Companies offer premium up to 1.9 times for skills which are high in demand as compared to basic skills. The overall salary increases in FY’22 for the key roles and skills has been at 14.8% as against an overall 10.4%. Technology skills such as those in AI, ML and Cloud computing are in high demand and command a premium of 15% to 20% over basic software engineering compensation levels.

Analytical skills like risk modeling, data architecture, and business analytics command a premium of 20% to 25%^[1].

Attrition trends

The attrition trends seen in India during 2022, which were shaped by an interplay of different forces such as the country’s economy, availability of job opportunities, and the emphasis on employee engagement and retention, continue to concern employers. The EY Future of Pay report reveals that sectors such as e-commerce, technology, financial institutions, and professional services are witnessing attrition rates of over 20%, which places these among the sectors with the highest employee turnover.

Future outlook for rewards

With many organizations getting innovative and personalized with their rewards value proposition to keep up with the evolving needs of millennials and to attract and retain high potential talent, several incentive tools and new-age benefits are gaining popularity.

Equity-based and long-term incentives: New-age digital enterprises are driving the expansion of such incentives, especially in terms of frequency, incentivization, and covering more employees.

• These incentives form as high as 50% of the total compensation in case of senior management/ executives and 25% in case of junior levels
• Among the varieties of share-based incentives offered, the employee stock option plan remains the most preferred type, though Restricted Stock Units (RSUs) are also trending.

Personalized benefits packages: As companies seek to attract and retain top talent, they would tend to offer more customized benefits packages that reflect the unique needs and preferences of individual employees. This could include perks, such as student loan repayment assistance, pet insurance, or elder care support.

Technology-enabled rewards management: With companies adopting more advanced HR technology, there will be increased use of data analytics and automation tools to manage and deliver rewards programs.