After Nil to Wafer-thin Increments in 2020, Most Employers Uncertain About 2021 Too: Report

Only 23 per cent organisations surveyed in the '2020 Workforce and Increment Trends' report by Deloitte said they plan to give increments to their employees in 2021, given the uncertainty in the business outlook

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As businesses continue to reel under the economic fallout of Covid-19, prospects of employee increments in the year 2021 are expected to remain pale, shows a report by Deloitte.

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Only 23 percent of the 350 organisations surveyed in the ‘2020 Workforce and Increment Trends’ report said they plan to give increments to their employees in 2021, given the uncertainty in the business outlook. Most other companies, across sectors, reported that they have not taken a definitive stance on next year’s appraisals yet and will decide on the basis of future performance of their employees.

In fact, increment decisions of fiscal years 2020 and 2021 are likely to be intertwined as about 38 percent companies that gave an increment in 2020 have decided to give increments in 2021 as well, as per the Deloitte report.

The companies that have decided to not give increments for 2021 are mainly from the consumer products, manufacturing and services industries, mirroring the uncertain outlook of these sectors due to the Covid-19 pandemic.

Further, the report points out that to work out appraisals for the next year, companies are using employee’s performance ratings more aggressively than ever. So much so that organisations are putting more and more employees below the “meets expectations” category.

Commenting on the same, Anandorup Ghose, partner at Deloitte Touche Tohmatsu India (DTTILLP), said, “Prior to the lockdown, increment decisions have largely been backward looking with the past year’s performance determining the increment budgets. COVID-19 has brought a big change to the process this year. Organisations are taking into account the likely future performance while deciding increment budgets.”

In fact, due to the uncertain economic conditions, organisations are increasing the periodicity of review for both organisational and individual goals. As compared to 37 per cent companies in 2019 who reviewed goals and targets with employees on quarterly/bi-monthly basis, about 45 per cent are doing so now.

The survey was conducted in June 2020 as a business-to-business survey, with Human Resources (HR) professionals as the primary audience. A total of 350 companies across seven sectors and 25 sub-sectors participated in it.

Wafer-Thin Increments in the Time of Covid-19

As per the survey findings, only four out of the 10 companies in India have given an increment to their employees this year. Of the remaining, about 33 percent companies reported to have not given an increment at all, while the remaining said they are yet to take a decision on whether to giver increments this year on not.

To talk about the average increment for 2020, which includes companies that did not give increments and those who are yet to decide, the number stood at a paltry 3.6 per cent.

To put this in perspective, India’s retail inflation in 2019 was at about 4.5 per cent, whereas it has spiked to 6.93 per cent in July 2020, as per data released by the Ministry of Statistics and Program Implementation (MoSPI).

Also, this year’s average increment of 3.6 percent is less than half the increment of 8.6 percent that employees received in 2019.

Of course, the greater the expected negative impact of COVID-19 on financial year 2020-21 revenue of businesses, the lower is the increments this year. “Organisations expecting a decline of more than 20 per cent in revenue in FY 2020−21 due to COVID-19 have given much lower increments,” the report said.

Moreover, the report shows that larger organisations, as per consolidated revenue brackets, have witnessed a bigger drop in increment due to COVID-19.

The average increment in companies with revenue of above INR 10,000 crore has been lower than relatively smaller companies, the report said. Also, increments have been lower for companies following a post-June increment cycle.

For instance, in companies (that have given increments) with revenue of above INR 10,000 crore, the percentage increment from all incremental cycles to post-July cycle dropped by 80 basis points (bps). In comparison, for companies with revenue more than INR 1,000 crore, increment for the above mentioned cycles dropped by 20 bps.

Even for those companies who have given increments, the average increment this year is 7.5 per cent, with less that 10 per cent giving out a double digit increment.

Interestingly, the report shows that most of the companies to have given double digit increments had done so before the Covid-19 outbreak in India.

“Organisations that had already decided their increments before the start of the lockdown in March 2020 have given a higher increment compared with others. Moreover, organizations expecting a decline of more than 20 per cent in revenue in FY 2020−21 due to COVID-19 have given much lower increments,” the survey report said.

In comparison to increments, COVID-19 has had less severe impact on bonuses. From every 10 companies, 7 have paid a bonus to acknowledge the past year’s performance and employees’ contributions, the report showed. Companies in life sciences, consumer products and Information Technology Enabled Services (ITeS) sectors are among the highest in terms of paying out bonuses this year as per the plan.