For decades, the HR budget was mainly about salary and wages.However, with the evolution of the workplace, HR budgets are also becoming more exhaustive.
This is because, earlier, only the knowledge-based industries considered their people to be their assets. Now, even other sectors are moving towards a knowledge-based economy. This has brought about a change in mindset, and of course, spends on people and HR.
In addition to salaries and wages, a typical HR budget now allocates funds for hiring, benefits, talent management, learning and development, training, succession planning, workforce engagement and employee-wellness planning.
It’s true that a lion’s share — almost 70-80 per cent — of the HR budget still goes into salaries and wages. However, there is a growing focus on other pockets — such as employee engagement, learning and development (L&D), as well as management of HR operations, which includes subscription to HR Management Systems (HRMS)— needless to say that spends are growing in these areas.
“Earlier business leaders such as the CFOs or the CEOs were less generous while allocating HR budget”
Suresh Bose, CHRO, Jindal Stainless
In fact, most of the HR heads that HRKatha spoke with for this story agreed that their budgets for L&D and employee engagement have gone up post the pandemic.
Even a Gartner study had predicted the same. As per the study, around two thirds of HR leaders planned to increase their budgets in 2022, which is almost twice the number in 2021.
So how is India Inc. planning its HR budget for this financial year? We are already in the second quarter of this fiscal year.
Usually, the HR Budget is derived on the basis of total revenue, operational cost or just cost per employee.
At a macro level, it can be stated that organisations, with a higher average HR cost, see HR as a strategic enabler that can improve workforce productivity levels, and thereby,
“In a capital intensive industry, the cost is more on the side of the business than the people. In a people centric industry, such as IT and technology, the people cost is almost 60 per cent of the total cost of the company. In consultancy, the people cost is even higher and touches 75 per cent,” shares Jayant Kumar, joint president – HR, Adani Ports and SEZ.
“The budget for rewards & recognition and employee engagement has increased at Lendingkart”
Asit Kumar, CHRO, Lendingkart
At the micro level, however, HR budgets are dependent on several other factors such as the stage the company is in, its requirements, its business growth strategy for the year, and so on.
Ramesh Mitragotri, CHRO, Ultratech Cements, shares with HRKatha that for his company, the HR budget is the culmination of the blended approach of the business strategy and the HR agenda.
“We look at the activities of the previous year, and decide on the flow for the current year,” he reveals.
For instance, when the HRMS technology was introduced in the market, the spends increased in that area. Similarly, during and even post the pandemic, travel cost has come down whether for business or hiring. Psychometric tools have been introduced for interviewing. All these external factors influence the HR budgets for the year.
The FMCG company, Emami has a slightly different approach. “We look at the financial, people and functional scorecard before deciding on the amount. However, before finalising the budget, we go to the far end of the cost in terms of manpower planning, be it new hires or attrition. In the process, we indulge in detailed chats with all functional heads to understand their requirements.”
SG Analytics, a company, which offers global insights and market research services, has stopped following a straight- jacketed approach while budgeting for its HR. Earlier, the Company used to allocate individual budgets, per person. Now, it is as per requirements. The objective is to provide a better experience to all the employees, whether working from the office or remotely.
Poonawalla Fincorp follows a totally different model. It calculates the HR budget on the basis of the ratio of the operational cost. The Company follows a zero-based approach to allocate budgets rather than an incremental approach.
“We look at the activities of the previous year, and decide on the flow for the current year”
Ramesh Mitragotri, CHRO, Ultratech Cements
“Some companies refer to the previous year’s budget and increase one to two per cent in each area.
At Poonawalla Fincorp, every bucket area starts from zero. We allocate the budget for each area as per the business strategy and needs of the company,” explains Manish Chaudhari.
However it’s not always about the strategy. It’s also about power struggle. HR folk also need to fight it out to get their budgets increased.
“In companies where the HR head is not strong enough vis-à-vis others in the leadership team, the team may not get a sufficient budget for HR, as others will try to dictate terms,” shares a senior HR leader.
“Earlier, business leaders such as the CFOs or the CEOs were less generous while allocating HR budget,” concurs Suresh Bose, CHRO, Jindal Stainless.
“A general formula was followed. As a thumb rule, two to three per cent of the sales revenue was the HR budget,” he recalls. Not much thought was given to the HR strategy.
“In a capital intensive industry, the cost is more on the side of the business than the people. In a people centric industry, the people cost is almost 60 per cent of the total cost of the company. In consultancy, the people cost is even higher and touches 75 per cent”
Jayant Kumar, joint president – HR, Adani Ports and SEZ
However, now things have changed for the better. Companies are willing to do everything for their top performers that form about 20 per cent of the total workforce. They give them hefty increments and even double promotions.
“The importance of people in an organisation has increased the impetus to the HR budget,” shares Chaudhari.
Kumar of Adani Ports & SEZ, however, differs. “I don’t think the HR budget has gained more prominence now. Every function in an organisation is important and has a specific role. If one is building plans as part of the HR strategy wherein the intern gives returns, then the business will be happy to allocate more budget for the same,” he enunciates.
SO WHAT’S IN STORE FOR FY 2023?
The company has been focussing on EV technology, and that’s where the HR budget is being spent.
“The real increase in HR cost is because we have to acquire talent in niche areas, such as EV technology and embedded software in EV vehicles. In this segment, there is a limited talent pool and the number of players in the market is increasing day by day,” says Manish Sinha, CHRO, Mahindra & Mahindra, Automotive Business.
Not just Mahindra Auto, but the entire Mahindra Group is now scouting for a new learning management system. While the learning system and the budget are integrated within the Group, there has been an increase in L&D budget at the Group level.
“The real increase in HR cost at Mahindra Auto is because we need to acquire talent in niche areas”
Manish Sinha, CHRO, Mahindra & Mahindra, Automotive Business
At Mahindra Auto, the budget for employee engagement has also increased by 25 per cent. The Company has introduced new initiatives. “Since people have started coming back to the office after remote working, engagement is a necessity,” asserts Sinha.
The HR budget has been increasing at the rate of five to six per cent year-on-year. The Company is now spending on the safety and wellness of employees.
In L&D, the budget has not increased, but the Company has altered its learning strategy, and newer learning tools and practices are being adopted.
Budget on employee engagement has gone up from what it was during the lockdown. The spend on engagement is at par with prepandemic levels, if not more. Budgeting for HR is based on activities – the largest section of the pie, post salary wages and insurance, goes to learning followed by employee engagement. Cost of hiring or recruitment processes comes in third.
ADANI PORTS & SEZ
The focus of this year’s budget is to get more out of less. Besides, there is increased emphasis on building team capabilities and developing talent in niche areas, such as cybersecurity and data protection.
“There has been an increase in the budget for insurance and medical benefits by 200 to 300 per cent in the last three years”
Kavita Singh, CHRO, United Breweries
The annual budget is calculated as the direct derivative of the business plans and as per ratios allocated for each stream. This year, the nonsalary part of the HR budget has increased manifold, as activities have increased.
Adani Ports’ annual HR budget is over Rs 400 crore.
Around 80 per cent of it goes into salaries, and 10 per cent in nonsalary expenses. Around 4 per cent is spent on employee wellness, 3 per cent on HR technology and the remaining 3 per cent on HR operations.
At Emami, the HR Budget is allocated based on the brands. Depending on the numbers the company wants to achieve for each brand, financial, people and functional scorecards are analysed. Opinion is sought from functional heads and manpower requirements are mapped for each function and brand.
The manpower budget, which includes salaries, wages, recruitment process cost and onboarding cost, is generally 10 per cent of the total net sales.
The other HR budget, which includes people engagement cost, learning and development and HR operations including all subscriptions to HRMS, is just 1 per cent of the net sales. The largest share of this budget goes into learning and development, followed by engagement.
The L&D budget has been doubled this fiscal. Upskilling of the workforce is high on the agenda.
“Even though salary continues to be the biggest component, attention is increasingly being given to skilling, communication, rewards and technology”
Rajorshi Ganguli, global head HR, Alkem Laboratories
The HR Budget is based on job activities, projects, external orientation and training.
The larger part of the budget, in the range of 70-80 per cent, goes into employee cost, including fixed salaries, wages and other variables.
“There has been an increase in the budget for insurance and medical benefits by 200 to 300 per cent in the last three years,” says Kavita Singh ,CHRO, United Breweries.
The budget for the last three years and the current scenario are evaluated before formulating the HR Budget. Department wise KPIs and KRAs are aligned to decide on the manpower requirement, and an organisation chart is created for succession planning.
Only then the total cost is calculated and the budget is allocated for each stream, be it learning, engagement, hiring or any other.
The data collection from each function starts in December, and the HR budget is presented first in January. There is a second presentation in February, and the final presentation is done in March. In addition, there is a review done month on month to monitor whether everything is moving as per the plan. Based on these reviews, an incremental budget is also approved.
“Earlier, salary was a major part of the overall HR budget. Now, however, we are looking at giving a better employee experience across the employee life cycle and that can be done with new-age tools and technology in HR”
Kiran Bala, chief people officer, SG Analytics
In terms of priority, talent management comes first, followed by talent acquisition and employee engagement.
“Our HR budget was about 2.9 per cent to the ratio of our sales turnover three year back. Last year it was 2.6 per cent and now it is 1.8 per cent of the sales turnover. It has decreased since the sales volume has increased, which indicates increased productivity,” says Suresh Bose, CHRO, Jindal Stainless.
The focus of the HR budget is primarily on talent acquisition, skill development and building capabilities. The Company is working on digitisation of HR and learning processes. Simple HRMS and LMS platforms have become inadequate as more people are working remotely.
The Company plans to invest heavily on HR technology and tools, and integration of HR analytics with it.
“Earlier, salary was a major part of the overall HR budget. Now, however, we are looking at giving a better employee experience across the employee life cycle and that can be done with new-age tools and technology in HR,” says Kiran Bala, chief people officer, SG Analytics.
Employee engagement and L&D costs have also increased as compared to last year.
“Some companies refer to the previous year’s budget and increase one to two percent in each area. At Poonawala Fincorp, every bucket area starts from zero”
Manish Chaudhari, president & chief of staff, Poonawalla Fincorp
There is no major change in HR budget. Salary cost takes away the lion’s share, as 70 per cent of its workforce comprises sales professionals. Even though salary continues to be the biggest component, attention is increasingly being given to skilling, communication, rewards and HR technology.
Adopting a holistic approach to budgeting for HR, the Company considers all the components such as recruitment, retention, learning, engagement and operations.
The rewards and recognition budget is kept separate from the employee engagement budget, and is calculated per employee. There has been an increase in spends in these two categories.
The firm has subscribed to a learning-management system and other HRMS tools and services such as legal compliance, background verification agencies as well as PF processing agencies.
Annual HR budget is around Rs 10-12 Cr.
“Before finalising the budget, we go to the last end of the cost in terms of manpower planning, be it new hires or attrition. In the process, we indulge in detailed chats with all functional heads to understand their requirements”
Tuhin Biswas,, CHRO, Emami
The Company aims to invest around 12 per cent of its entire HR budget on learning and development, since it is going through a digital transformation process.
As per Chaudhari, this is the first full year for the Company, since the last two years have been disrupted by the COVID-19 pandemic. That is why, the L&D budget has been increased by 18 20 per cent, and the budget for employee engagement has been increased 1.5 times.
Employee engagement takes away 10-12 per cent of the total HR budget, as new employees have joined. There is a separate budget for employee wellness and for sustaining the culture of the organisation, which take away 9 per cent each.
Salary and manpower accounts for the biggest share, that is, 60 per cent of the pie.