Future of Pay

March 2023

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Foreword
“As the workplace of the future emerges amidst global economic
and geo-political shifts, India continues to remain optimistic through
strong fundamental metrics. With strong domestic demand, a
burgeoning new age digital economy and a significant upsurge in
GCC setups, India Inc. seems to be sending the right signals out into
the Global business theatre. Talent demand in the country continues
to outstrip employable supply with attrition in double digits as a
steady trend over the past year. As per the World Economic Forum,
of the 13 million people who join India’s workforce each year, only
one in four management professionals, one in five engineers, and
one in 10 graduates are employable. Such bottlenecks have a far
reaching impact on Cost of talent not to mention a need for rapid
upskilling/reskilling of India’s workforce to remain relevant in the
next few years.
While talent asymmetry does impact Total Rewards trends, upswing
in pay hikes has also been a great barometer of business growth and
all round economic prosperity and current projections seem to be
pointing in the right direction. With the Indian Government pushing
for healthy tax reforms and demand/investment drivers for the
economy, it doesn’t come as a surprise that Indian Inc is projecting
healthy compensation hikes in the next fiscal.
We at EY, People Advisory Services have been monitoring the Total
Rewards space in light of India’s economic reality for some time
and feel there’s more to just cash increments that can be expected
in the future. With rising people costs organizations are focusing
on building comprehensive Rewards Value Propositions (RVP) to
augment EVPs in order to attract and retain talent in a deeply
competitive talent market. Our market scan shows some interesting
practices emerge in this aspect and we believe this is the beginning
of a Total Rewards transformation journey for this country.
With that we are extremely proud to launch our “Future of Pay”
Report for India outlining not just cash but Total Rewards trends
emerging in the country. I want to thank all our industry participants
across sectors and our EY colleagues who came together to make
this happen. I look forward to sharing and discussing these trends
with Industry experts and clients in the coming weeks and months.”

Anurag Mailk
Partner, National Leader - Workforce Advisory Services,
Ernst & Young LLP, India

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Contents
Economic outlook 06

Talent trends in India 10

Total rewards trends 14

The future outlook 18

for rewards

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 1

Economic outlook

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 Global economic trends

Year 2022 was volatile for the global economy due to political 3. Growth of emerging economies: Many emerging
tensions, recessionary indicators and growing inflation. economies have continued to experience robust economic
Organizations are prepared for continued volatility in the growth in recent years. This growth is expected to
years to come as the global economy faces an uncertain continue, with these economies becoming an increasingly
outlook in the immediate future. important part of the global economy.

Global growth is expected to fall from 5.9% in 2021 to 3.1% 4. Globalization and trade: Global trade and globalization
in 2022 and further to 2.2% in 2023. Except for the global have been key drivers of economic growth in recent
financial crisis and the most severe phase of the COVID-19 decades. However, there have been concerns about the
pandemic, this is the weakest growth profile since 2001. negative impacts of globalization, such as job losses and
widening income inequality.
Some of the major factors that will influence business are:
5. Climate change and sustainability: Climate change
1. Rising inflation: Global inflation is expected to rise from
and sustainability are becoming increasingly important
4.7% in 2021 to 8.8% in 2022, but it is expected to ease
considerations for businesses and governments, as the
down to 6.5% in 2023 and 4.1% in 2024. Despite slowing
world moves towards a low-carbon economy.
activity, global inflation has been revised up, in part due to
rising food and energy prices. While the world was going through a slow growth period
in 2022, strong economic growth in the first quarter of FY
2. Increased digitalization: The pandemic has accelerated
2022-23 helped India become the fifth-largest economy in the
the shift toward digital technologies and online commerce,
world ahead of the UK.
with transactions increasingly taking place online. This
trend is likely to continue.

Indian economic trends

According to IBEF, India’s GDP growth has been among 4. FDI: India has been attracting a significant amount of
the highest in the world, averaging 6% to 7% per year. The foreign direct investment (FDI) in the last two to three
economy has been showing positive trends in recent years. years. Currently, the cumulative FDI equity inflow stands at
Some of the key developments in India’s economy include: US$604.99b (April 2000-June 2022)

1. Growth: Growth in India is projected to decline from 6.8% 5. Inflation: Inflation has been a concern in recent years,
in 2022 (FY23) to 6.1% in 2023 (FY24) before picking up but the government has taken steps to control it, such
to 6.8% in 2024 (FY25). Thus, even amidst signs of global as reducing food subsidies and implementing monetary
recession, the growth story in India remains intact. policies to reduce demand-side pressures

2. Manufacturing: The manufacturing sector has been Despite these positive trends, India still faces several
growing rapidly, driven by improvements in technology and challenges, such as poverty, unemployment, and low
infrastructure, as well as favorable government policies agricultural productivity. The government is working to
which aim to increase the share of manufacturing in GDP address these issues through a combination of policy reforms
to 25% by 2025. and investments in infrastructure and human capital.

3. Services sector: The services sector, which includes

the information technology industry, has been a major
contributor to India’s economic growth. The IT industry
accounted for 7.4% of India’s GDP in FY22, which is
expected to increase to 10% by 2025.

Source: EY Economy Watch January 2023, EY Economy Watch February 2023

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 Projections

India’s GDP will be India’s per capita income would exceed

US$26t US$15,000
in market exchange rate terms by 2047-48, putting it among the ranks
by 2047-48 of developed economies

Source: EY report India@100

Sector outlook - India

Despite the challenges of rising inflation, a depreciating Sectors expected to have slower growth in 2023:
currency, and slowing growth in key sectors like agriculture,
• Weaker overseas demand may result in slow revenue
the Indian economy has been growing at a robust pace
growth in the IT enabled services and chemicals sectors.
in recent years owing to the contribution of sectors like
The Indian IT services industry’s growth momentum is likely
manufacturing, services, etc.
to slow down due to lower discretionary IT spending.
Sectors expected to grow in 2023:
New age digital enterprises:
• Consistent economic growth and the state’s increased
• The Indian startup ecosystem is going through a funding
infrastructure spending will support long-term demand
winter, which is expected to continue in 2023. This has
growth in the cement and steel industries
made new age digital enterprises (startups) follow a
• According to IBEF, India’s domestic pharmaceutical more conservative approach and focus on approaching
market, which is expected to show steady growth, stood profitability faster while pushing unit economics, revenue
at US$42b in 2021. It is likely to reach US$65b by 2024 and growth.
and further expand to reach US$120 to US$130 billion by
• Startups will now have access to an experienced bunch of
2030.
employees due to layoffs at large corporations. Specific
• The auto components industry accounted for 2.3% of industries such as quick service restaurants (QSR),
India’s GDP and provided direct employment to 1.5 million e-commerce and electric vehicle manufacturing are
people. By 2026, the automobile component sector will expected to grow in India.
contribute 5% to 7% of India’s GDP.

• Manufacturing, renewable energy, technology and

infrastructure are among the few other sectors expected
to generate high growth

Source: India Brand Equity Foundation (IBEF)

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Talent trends in India

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 Talent trends

The current talent market in India is dynamic and evolving

rapidly, shaped by a combination of global economic trends,
technological advancements, and changing workforce
expectations. Some of the current talent trends in India are:

• Growing talent pool: India has a large and growing

talent pool and have one of world’s largest working-age
population. Undergraduates in engineering and technology
earned the highest employability rating in 2022, i.e.,
around 55%. Graduates with a computer application degree,
on the other hand, had an employability rate of roughly 29%

• Skilled talent shortage: There is a high demand for

skilled workforce in India, particularly in sectors such as
technology, healthcare, and manufacturing. This has led
to a shortage of skilled talent in certain industries, which
is driving up salaries and creating more opportunities
for job seekers. Several sectors, such as electronics
manufacturing, life sciences, healthcare, and technology,
may continue to see a mismatch between the demand and
supply of skilled labor over the next few years.

• Increasing competition for top talent: As the Indian

economy continues to grow, competition for top talent
is intensifying across various industries. Companies are
increasingly focusing on employer branding, benefits, and
retention strategies to attract and retain high-quality talent.
Top talent with critical skills and high-performance history
command compensation premiums ranging from 1.7 to 2X
of average talent.

• Upskilling and reskilling: With the fast-changing job

market and rapid disruption of industry through technology,
upskilling and reskilling have become essential for
employees to remain relevant in their careers. The top skills
that are in demand in India include software development,
data analysis, digital marketing, and business management.

• Sectors looking to hire in 2023: Some of the most

promising emerging sectors for jobs in India in 2023
include renewable energy, e-commerce, digital services,
healthcare, telecommunications, educational services, retail
and logistics and financial technology. These sectors are
anticipated to keep growing and provide a wide range of
employment options for qualified employees.

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 Attrition trends

Attrition % Overall Voluntary Involuntary

Attrition highlights

Overall 21.2% 16.8% 3.6%

Top 3 sectors

Financial Institutions 28.3% 23.2% 5.1%

Ecommerce 27.7% 24.9% 4.9%

Technology 22.1% 19.1% 3.2%

Bottom 3 sectors

Metals and Mining 8.2% 7.8% 3.1%

Hospitality/Restaurants 9.1% 8.9% 1.5%

Aerospace 10.9% 8.4% 0.9%

Key insights The reasons for voluntary attrition

• Towards the end of 2022, the attrition rate in India

Limited career growth and advancement
1. opportunities
has shown signs of easing from the 2021 level
• A complex interplay of various factors influenced the
attrition trends in India in 2022. It included factors
2. External inequity of compensation
such as the state of the economy, job opportunities,
and the focus on employee engagement and
retention by organizations.
• The ecommerce, technology, financial institutions 3. Internal inequity of compensation
and professional services sectors are experiencing
attrition rates exceeding 20%, which positions them
among the top sectors in terms of attrition 4. Role stagnation
• India’s startup ecosystem has reached a new level
of maturity, with cash-rich companies aggressively
hiring tech talent to propel their growth, creating a 5. Lack of recognition
ripple effect throughout the industry
• The convergence of various sectors, including
manufacturing and financial services, toward digital
channels for growth is further driving the demand for
tech talent

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Total rewards trends

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 Salary increase trends

The talent trends reveal a mismatch between demand • While nearly half of the companies (about 48%) pay out the
and supply of certain skills and within certain sectors. premium by way of increase in salary, about 22% companies
Compensation continues to be on the rise despite global preferred to roll out a one-time or a skill bonus to retain key
slowdown and layoffs by multiple companies. skill within the organization

• Key skills and roles will continue to outshine the overall • Projected salary increases for 2023 are slightly lower than
increment numbers due to continued high demand the actual increases for 2022 across all job levels, except
for blue-collar workers who are projected to have a slightly
• Technology skills such as those in AI, ML and Cloud
larger decrease in compensation in 2023
computing are in high demand and command a premium of
15% to 20% over basic software engineering compensation • With companies investing in developing their employees,
levels they may not need to offer high salary increases, which
could explain why the projected hikes in compensation are
• Analytical skills like risk modelling, data architecture, and
slightly lower than the actual increases in 2022
business analytics command a premium of 20% to 25%

Salary Increase % 2022 (A) 2023 (P)

Salary increase highlights

Overall 10.4% 10.2%

The overall salary increase in employee categories descended to 10.2% (Projected) as compared to 10.4% (Actuals) in FY’22, but
remains to be in double digits.

2022 (Actuals)
2023 (Projected)

10.4% 10.9%
10.5%
9.9% 10.1%
9.3% 9.5%
9.0%

5.4%
5.0%

Executives Function People Individual Blue collar

(CXOs) heads managers contributors workforce

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 Salary increase trends across sectors

Sector 2022 (A) 2023 (P)

E-commerce 14.2% 12.5%

Professional services 13.0% 11.9%

Information technology 11.6% 10.8%

Financial services 10.9% 10.3%

Automotive / Vehicle manufacturing 10.3% 9.4%

Media & Entertainment 10.3% 10.5%

ITeS 10.3% 9.8%

Telecommunications 10.3% 9.7%

Chemicals 9.9% 9.3%

FMCG/FMCD 9.8% 10.0%

Lifesciences / Pharmaceuticals 9.6% 9.6%

Metals and Mining 9.6% 9.5%

Engineering 9.5% 9.8%

Real Estate / Infrastructure 9.3% 10.2%

Oil and gas 9.0% 9.8%

Transportation services / Logistics 9.0% 10.1%

Key insights

• The significant gap that existed during the recession is now narrowing, and sectors that were severely impacted by
the pandemic are experiencing a resurgence

• The IT sector has consistently offered one of the highest salary increases in India, driven by increasing demand for
skilled professionals. However, a minor downward trend is seen as global market demand is experiencing a slowdown.

• The e-commerce industry in India has experienced rapid growth in recent years, driven by factors such as increasing
internet penetration, rising consumer spending, and the COVID-19 pandemic. However, there seems to be a 170-bps
correction in 2023 projections as funding remains cautious

• With the upsurge in internet commerce, transportation and logistics has seen an upswing in salary increments

• Ecommerce, IT and professional services remain the top 3 sectors for salary increase projections in 2023

• Pay hikes offered to average vs high performing talent operate at a ratio of 1:1.8 as an average across sectors

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 Key roles and skills Variable pay trends

Salary increase for key roles and skills Variable pay % 2022 (A)

Overall 14.8% 2022 Actuals Variable pay highlights

Average variable pay-out as a

15.6%
Skill premiums for key roles and skills percentage of total compensation

Organizations offer premium up to

1.9x 1.9 times for skills which are high in
demand as compared to basic skills Variable pay 2022(A)
25.20%

Key skills/ roles continue to be in demand across sectors and 21.30%

command premium in the market. Given the mismatch in the
16.70%
demand and supply for the key skills, this trend will continue
to rise in the near future.
10.80%

Organizations offers premium for the skills which

48% are high in demand

Organizations offer one-time bonus/skill bonus and

22% retention bonus for skills in demand Executives Function People Individual
(CXOs) heads managers contributors

Organizations promote skill premiums for several reasons:

1. Attract and retain talent: By offering a premium for • While executives (CXOs) typically have the highest
specific skills, organizations can attract and retain highly percentage of variable pay, their projected compensation
skilled employees who might otherwise be lured away by increases by 2023 are lower than in 2022.
higher paying offers from competitors • Variable pay-outs in 2022 reflected the recovery across
2. Improve performance: When employees are compensated sectors and many organizations could revise their pay-out
for their skills, they are motivated to continue developing plans upward as the year progressed.
and refining their skills, which can lead to improved • This is a positive sign for both employees and companies
performance and better results for the organization as it suggests that business performance is improving
3. Stay competitive: Organization remains at the forefront and that companies will reward their employees for their
of its industry and is well positioned to take advantage of contributions to that success.
new opportunities and challenges • Financial institutions have the highest overall variable pay-
out percentage of 25.5%, indicating a higher emphasis on
performance-based incentives.

• Whereas telecommunications has an overall variable pay-

out percentage of 13.7%, which is relatively low compared
to other sectors

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 4

The future outlook

of rewards

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 New ways of working The new ways of working are changing the traditional
office-based work culture and allowing for more flexible
Companies are moving away from giving disproportionate and agile work arrangements that can accommodate the
salary hikes and are instead focusing on promoting healthy changing needs of employees and employers. With the
ways of working to invest in their employees, control costs, widespread adoption of communication and collaboration
and create a more positive work environment. This approach tools, remote work has become increasingly acceptable.
can lead to a more engaged, productive, and loyal workforce Many companies are adopting flexible work arrangements
over the long term. that allow employees to set their own schedules and work
outside of traditional working hours. Co-working spaces
provide a shared working environment for freelancers,
Key insights remote workers, and entrepreneurs, offering a flexible
and cost-effective alternative to traditional offices.
Ways of working

42%
26% 21%
11%

Full-time Hybrid (few Flexible 100% Remote

office days either (either from working
office or office or
home) home)

• Many employers are expecting the workforce to return to

office as the markets open, while some organizations still
choose to operate in a hybrid/flexible work model

• Organizations are offering the same pay for employees who

work in offices versus those who work remotely

25%

Wellness
programs

75%

Organisations that have wellness programmes

Organisations that do not have wellness programmes

• With many organizations are adopting flexible working

models, employers are now more focused on incorporating
wellness programs as part of their benefits framework

• Emotional and physical wellness are the prime focus for

employers, followed by financial and social wellness

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 New-age benefits

Organizations are offering various new-age benefits as part of their total rewards to keep up with the evolving needs of
millennials and to attract and retain high potential talent

Remote working Flexible work

options arrangements

Providing remote work Offering flexible work

options, giving employees arrangements such as
freedom to choose their telecommuting and flexible
work location, granting hours helps companies
fully remote or hybrid attract employees who
working value work-life balance

Health and wellness Employee assistance

programs programs

Companies are offering 6 1 Providing resources and

various health and support for employees
wellness programs to help facing personal or work-
employees lead a healthy 5 2 related challenges, such as
lifestyle. This can include stress, financial problems,
gym memberships, healthy or family issues
food options, and wellness 4 3
workshops

Generous paid Professional development

time off opportunities

Companies are offering Providing opportunities for

more generous paid employees to attend training
time off policies, such as sessions, conferences,
unlimited vacation time or and workshops can help
paid sabbaticals, to help employees develop new
employees recharge and skills and advance their
improve work-life balance careers

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 Future outlook for rewards

Equity-based long-term incentives: This is already a

popular tool used to retain employees and encourage them
to deliver the desired outcomes. There is a growing trend
of using equity-based long-term incentives. In particular,
new-age digital enterprises are driving the expansion of such
incentives, especially in terms of frequency, incentivisation,
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. However, Restricted Stock Units (RSUs) have seen
trending and are the second most preferred type of plans.

New labor codes: While there has been a delay in

implementation of the labor codes, they are expected to come
into effect in 2023. Majority of the companies have taken
cognizance of the development and 56% of companies have
conducted at least a study of the impact of the new labor
codes on compensation. About 26% companies have taken a
step further and have adjusted their compensation structure
to align with the new labor codes.
Gig economy: In 2020-21, 76 lakh (7.6 million) workers
were estimated to be engaged in the gig economy. The gig
workforce is expected to expand to 2.4 crore workers by
2029-30. The gig economy empowers workers, giving them
flexibility in scheduling and structuring their days so they
maximize their potential for work and life. With the rise of
freelancing apps and an increasing job crisis, gig jobs are
becoming increasingly desirable and available for a tech-
savvy generation of Millennials. On the contrary, only 38% of
employers believe that gig workers will grow significantly in
their organization in the next two to three years.

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: As companies

adopt more advanced HR technology, they may move away
from traditional methods of day-to-day rewards management
to a technology led platform. This will allow them to use data
analytics and automation tools to manage and deliver rewards
programs. It could include personalized recommendations
for benefits and perks based on employee preferences, or
real-time tracking of performance metrics to take informed
compensation decisions, etc.

Source: India’s booming Gig and Platform Economy, NITI Aayog

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Notes

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Abhishek Sen
Working across assurance, consulting, law, strategy, tax and
transactions, EY teams ask better questions to find new answers Partner, Total Rewards Practice Leader
for the complex issues facing our world today. Email: [email protected]
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