Factors that can affect appraisals in 2023

Will those who kept their jobs feel fortunate and have modest expectations, or will they feel more valued, and expect a higher salary raise?

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The past six months have been volatile for employment, globally, especially in the technology sector, where hundreds of thousands of people lost their jobs. This naturally resulted in a sombre mood among existing employees.

Now, as appraisals loom, the big question is how the layoffs will affect them and the resulting salary hikes. Will those who kept their jobs feel fortunate and have modest expectations, or will they feel more valued, and expect a higher salary raise?

The answers to these questions are not straightforward and will depend on the employees’ role, function and the sector they work in. Besides these internal factors, several external influences will also impact appraisals in 2023.

To draw any conclusion, it’s important to first evaluate the core reason behind the layoffs in the technology sector.

The layoffs that have occurred over the past six months and are still ongoing are primarily the result of overhiring in the previous year. At times, companies may also resort to staff reductions due to a disparity between their desired goals, industry trends and their capabilities. Another factor that can result in layoffs is automation, where certain roles become redundant.

“Organisations misjudged their numbers and hired more people than they needed, presuming a high level of attrition. However, attrition rates have slowed down, and as a result, organisations now have excess staff,” says a senior HR leader from the IT sector.

“Layoffs are influenced by both internal and external factors. External factors may include the industry, the macroeconomic environment or recessionary pressures. Internal factors are related to the organisation’s product or service line or internal strategy, such as the internal strategy for performance. Employee appraisals or evaluations are used to assess an individual’s performance within the organisation based on the previous year, quarter, or month. They are also used to develop talent for the future,” explains Sailesh Menezes, VP & head HR, Hewlett Packard Enterprise India.

Having said that, there can be some overlaps as well. “In cases where redundancies occur and the organisation is struggling from a performance perspective at a macro level, individual appraisals will have to reflect the organisation’s performance very closely. Not every individual, but overall, the summation or collation of all individual appraisals should match the overall performance of the organisation,”he adds.

Compensation review

Many heads of HR from the technology sector believe that there isn’t always a direct correlation between layoffs and organisational performance management. In that case, will the compensation part of the appraisal process, that is, the salary raise, be affected?

The impact on employee rewards may vary depending on how the organisation has handled performance management throughout the year.

“While Max Life does link separation to productivity, the company is growing and will not be laying off people, especially non-sales employees.”

Shailesh Singh, sr. director & CPO, Max life insurance

Appraisals are meant to evaluate and provide feedback on an employee’s job performance, skills, accomplishments and areas of improvement. The final outcome of the appraisal process is, of course, the compensation review or the salary hike.

Bhuvaneswar Naik, CHRO, Lentra, says, “Unless a company is going through a cash crunch, I don’t think there will be any impact on the appraisals or salary raise.”

He goes on to say, “Good people are to be retained and for that, they need to be paid well,” he insists.

Naik refers to the general industry prediction that the salary increment in 2023 will average around 10.5 per cent across sectors. “Even those who have been laid off for some reason have now been hired by other companies and at a higher pay scale,” he states.

Senior HR leaders are also of the opinion that the layoffs in the technology space will have little impact on the compensation review.

“We will also allocate significant budgets to ensure that we retain and nurture our talent, and demonstrate that we are an employer of choice. This year’s increment is likely to be higher than the previous years, which have seen muted salary increases. We believe this is a positive sign for the industry, and will lead to a correction in entry-level salaries and
expectations.”

Gautam Srivastava, VP-HR, The Leela Palaces, Hotels & Resorts

“It’s not that businesses have slowed down. Rather, their estimations of growth have been way off. Many people thought demand would accelerate, but the reality has been different. While growth is still happening, it’s not happening at the rate that was expected. This is different from situations such as that in the year 2008, when businesses actually did slow down,” an HR pracitioner opines.
Somewhere recession seems to be knocking on the door, especially in the West. Will that impact the compensation in India?

Independent observers seem to be of a different view.

Rituparna Chakraborty, VP & co-founder, Teamlease, and an independent observer of the HR sector, says, “Employees, especially those from the technology sector are already anticipating muted salary hikes and expect the situation to remain the same for the next 18 months”

Another independent observer, Viswanath PS, MD & CEO, Randstad India, has a mixed view. He believes that some employees who have been retained by their organisations may feel a greater sense of responsibility and importance, especially if they know that others have been laid off.

“Employees, especially those from the technology sector are already anticipating muted salary hikes and expect the situation to remain the same for the next 18 months.”

Rituparna Chakraborty, VP & co-founder, Teamlease

“This can stem from a feeling of survivor guilt or a desire to prove their worth to the organisation. On the other hand, some employees may become more humble in their expectations and feel grateful for the job they have in a challenging economic climate. It ultimately depends on the individual’s personality, values and mindset,” says Viswanath.

One needs to take into account that after the pandemic, there was a boom in many industries, but companies’ estimations of future growth have been off. However, this doesn’t
mean that businesses are not making money. In fact, most companies are profitable and are projecting growth, but just not at the levels that were initially anticipated. For instance, if
the IT industry projected double-digit growth for the year, but it turns out to be single-digit growth, it is still considered good growth.

Since companies are still profitable, employees’ salaries are unlikely to be cut. They will continue to pay their employees, despite the discrepancy in initial projections and actual growth

Non-tech sectors

It’s a different world altogether. No one from the non-IT or nontechnology sectors seems to be bothered about any slowdown, forget pay cuts. In fact, people are talking about growth.

Retail

“Appraisals are mostly related to a company’s internal culture and their evaluation of an individual’s past performance and potential. Therefore, it is an integral part of the cultural
fabric of an organisation in terms of the performance-management process,” comments Jacob Jacob, global CHRO, Malabar Group.

In fact, Malabar Group is increasing the number of retail stores, both domestically and internationally, along with the manufacturing capacity.

“In a year, we require to recruit approximately 7500 to 8000 employees across our retail, manufacturing, and other supporting businesses. Considering the number of employees we need and the fact that retail attrition is almost 22 to 23 per cent, we must keep our current management team members together and provide a compelling story for new hires to join our organisation,” says Jacob.

“Manufacturing, energy and pharmaceuticals are absolutely on the upward curve and several industry studies are predicting an average salary raise of 9.5 to 10 per cent, which is few points better than the previous year’s estimate.”

Praveen Purohit, deputy CHRO, Vedanta Resources

Hospitality

Even in hospitality, there is an upswing. Following the COVID-19 outbreak, the hospitality industry saw a significant decrease in business activity, leading many companies to cut salaries and lay off employees. However, since the third wave, the industry has seen a V-shaped recovery, with people starting to return to hotels for leisure, staycations and long weekends. This has led to a different type of customer, and some companies have had to adjust their business strategies accordingly.

Despite the difficult circumstances, some hotel chains in the hospitality sector continued to give their employees salary increments, bonuses and promotions during the pandemic. The Leela was one of these companies, along with a few others, while most of the larger chains cut salaries and laid off employees.

“As the industry continues to recover, there is hope for further growth and expansion, with the potential for salary increments and promotions for employees who demonstrate
exceptional performance,” says Gautam Srivastava VP-HR, The Leela Palaces, Hotels & Resorts.

“We predict that hotels will continue to experience high occupancy rates this year, while the market is on an upward swing. As a result, we anticipate a positive impact on appraisals within the hospitality sector, with an average salary increase of around 10 per cent, based on research reports from leading firms,” he adds.

Srivastava claims that in his organisation, in addition to promotions for high-performing employees, they will also invest heavily in top talent and high potentials, with a focus on
learning and development, as well as career progression.

“Unless a company is going through a cash crunch, I don’t think there will be any impact on the appraisals or salary raise.”

Bhuvaneswar Naik, CHRO, Lentra

“We will also allocate significant budgets for people managers to ensure that we retain and nurture our talent, and demonstrate that we are an employer of choice. This year’s increment is likely to be higher than the previous years, which have seen muted salary increases. We believe this is a positive sign for the industry, and will lead to a correction in entrylevel salaries and expectations,”
he shares.

Srivastava suggests that companies must ring-fence their talent. He anticipates that most hotel chains will have a budget larger than normal, and that this year will bring good increments for hotel employees. According to Srivastava, this is a positive sign and a correction to entry-level salaries and expectations in the hotel industry.

Besides, the hospitality industry will start seeing more incentives being offered to employees, beyond just salaries, this year. This is a trend that has been present in other industries
such as sales and customer service for some time. The incentives in the hospitality industry will be related to FnB service charges, room accreditation, sales, customer service and guest appreciation. The goal is to provide employees with more earning potential in addition to a good working environment.

Manufacturing

Another HR head from a non-tech sector is quite upbeat about the salary increase, and these sectors have remained untouched by layoffs.

“Manufacturing, energy and pharmaceuticals are absolutely on the upward curve and several industry studies are predicting an average salary raise of 9.5 to 10 per cent, which is a few points better than the previous year’s estimate,” says Praveen Purohit, Dy. CHRO, Vedanta Group.

“The first reason for this growth is the focus on infrastructure projects and government support for businesses. The second reason is that businesses are executing their projects and capital expenditure is contributing to the growth agenda,” he adds. Purohit claims that the increased hiring by nontech companies from campuses is also evident of the fact that things are improving.

“The technology market had become overheated and saturated with incentives such as bikes and gold chains being offered to attract talent. This resulted in a correction in the market, stabilising compensation ranges and reducing offer drop-offs.”

Ruhie Pande, CHRO, Godrej capital

Siddhartha Ghosh, CHRO, Adani Wilmar, says, “Despite the various challenges posed by geopolitical instability, ongoing conflicts, rising inflation, and limited spending in rural areas, we have remained committed to our vision. At Adani Wilmar, we are mindful of the signals our actions send to our workforce, and one way we communicate this is through
our appraisal process. We have continued to reward positive behaviours and have not been affected by the recent spate of layoffs. Our priority has always been to make decisions with long term benefits in mind, and we strive to ensure that our employees share this perspective. We are excited to set new goals for the upcoming year and look forward to continuing to support and reward our team members for their contributions.”

BFSI

Layoffs have a different context in the insurance sector. Here, layoffs are primarily driven by nonperformance.

A large number of employees who are not meeting their performance targets are generally put on a performance improvement plan first. This practice is also followed in Max Life, according to Shailesh Singh, sr. director & CPO, Max life insurance. “The company allows them 45 to 60 days to improve their performance, but if they fail to do so, they are
separated from the company. This is how the process works in the sector, and most companies handle it in a similar way,” reveals Singh.

Singh believes that layoffs have had little impact in the insurance sector. “While Max Life does link separation to productivity, the company is growing and will not be laying off people, especially non-sales employees,” he shares.

Who will get the bigger pie?

The merit increase of an employee can indeed be influenced by three factors:

Individual performance: The performance of employees  throughout the year is one of the primary factors that determines whether they deserve a merit increase or not.

“In cases where redundancies occur and the organisation is struggling from a performance perspective at a macro level, individual appraisals will have to reflect the organisation’s
performance very closely. Not every individual, but overall, the summation or collation of all individual appraisals should match the overall performance of the organisation.”

Sailesh Menezes, VP & head HR, HPE India

 

Performance of the organisation: The overall performance of the organisation also plays a role in determining the merit increase of an employee. If the organisation is performing well, it may have more funds to allocate towards employee compensation.

Market or industry movement: The third factor that influences merit increase is the market or industry movement in terms of midpoints and pay ranges. These ranges are often influenced by inflation in the country or region.

“One generally pays for a skill, competence, performance, or potential, and not necessarily on the basis of whether there were layoffs or not. However, if an organisation has laid off people due to poor performance, then it can impact team members’ rewards at the end of the year. This is because, the organisation has not performed well, and that’s why it had to resort to layoffs in the first place,” says Menezes of HPE.

“Talent is indispensable for a company has to grow. In any sector, the purpose of performance discussions and reviews is to focus on the best talents in a company, ensuring their performance is taken care of, and that they are rewarded appropriately.”

Ravi Kumar, CPO, Page Industries

Niche skills

Independent observer, Kamal Karanth, founder, XPheno, believes that the outcome of appraisals will depend on the performance as well as the role and its importance within the company. High performers with niche skills will demand and get more. For instance, however gloomy the market may be in the technology world, people with digital skills such
as cloud, full stack and data are still in great demand.

“If a good full-stack engineer got ten to 15 interview calls from the market every day during the peak time, the numbers would have dropped to four to five calls now. However, the job and role is still in great demand,” says Karanth.

The fact remains that employers are willing to pay more for individuals who possess certain specialised skills that are in high demand. As the technology landscape continues to
evolve rapidly, industries are looking for talent with specific skills to stay competitive. Therefore, it is likely that people with certain skills will continue to command higher salaries. It’s a demand and supply philosophy.

“Appraisals are mostly related to a company’s internal culture and their evaluation of an individual’s past performance and potential. Therefore, it is an integral part of the cultural
fabric of an organisation in terms of the performance management process.”

Jacob Jacob, group CHRO, Malabar Group

Certain skills are more valued because there is a demand from clients. The industry is willing to pay more for skills that are in high demand. This trend of paying a premium for valuable skills has been ongoing for the past few years and is likely to continue.

“I don’t see this trend changing anytime soon, so individuals with better skills can expect to earn higher salaries,” states a senior HR leader from a leading IT company.

Even in manufacturing, Purohit believes that people with unique skills will get the impetus during appraisal. For instance, people who are experts or have knowledge in predictive maintenance, data science, analytics, artificial intelligence and machine learning. Vedanta being a mining company, favours people who come from exploration background during salary appraisals “Companies seem to be more considerate towards such niche skills,” adds Purohit.

The Best Performer

Chakraborty is also of the view that the distribution of the pie will depend on the performance. However, she offers a different perspective. According to her, even when expectations are muted, the pie will not alter. That means, the best performer will get a larger share. The implication of this is that they will feel valued. “The best performers will feel that even if they may not get what they are aspiring for, there’s an acknowledgment of their performance as against someone else who has not performed well,” she explains.

“For those who were not laid off, there is a feeling of survivor guilt or a desire to prove their worth to the organisation. On the other hand, some employees may become more humble in their expectations and feel grateful for the job they have in a challenging economic climate. It ultimately depends on the individual’s personality, values and
mindset.”

Viswanath PS, MD & CEO, Randstad India

Ravi Kumar, sr. president and CPO, Page Industries, is of the belief that the best talent has to be rewarded handsomely, irrespective of the market condition or any other external factors. “Talent is indispensable for a company has to grow. In any sector, the purpose of performance discussions and reviews is to focus on the best talents in a company,
ensuring their performance is taken care of, and that they are rewarded appropriately.”

Retention strategy

Layoffs and attrition are also not interconnected. It’s not as if attrition will go down if layoffs are high in number. There may be some marginal impact on attrition but the number can’t be zero. For instance, despite layoffs, attrition has not gone down drastically or hit single digit. This means, companies will have to give out high increments in order to retain their top talent.

Karanth predicts anything less than a 20 per cent hike will not make the best people stay on. That’s because, if they change jobs, they are likely to get 30 per cent or more.

Mid-level wins

So which level of employee will get the primary attention during appraisals — entry, mid or top level?

“If a good full-stack engineer got ten to 15 interview calls from the market every day during the peak time, the numbers would have dropped to four to five calls now. However, the job and role is still in great demand.”

Kamal Karanth, founder, Xpheno

“Companies usually focus more on the mid- to lower-mid employees and not the junior most. The mid to the lower-mid is the segment which normally has a reasonable amount of experience. The employees in this segment have a good amount of skills, and they’re always in demand. Therefore, usually when the money situation is tight, companies focus on a segment, say between a three to an eight-year kind of a segment,” says a senior HR leader from a leading IT company.

“Focusing on the frontline, midlevel and entry-level employees is essential,” says Srivastava of Leela Hotels.

Mid-level employees run the organisation, and losing experienced and tenured employees creates a knowledge gap that can be difficult to fill. “The transition of knowledge is a significant challenge, so it is crucial to invest in internal talent development and grooming for various roles and levels. This involves spending more money on farming talent internally, providing good salaries, career-development plans, and training managers to handle a multi-generational workforce,” he adds.

“At Adani Wilmar, we are mindful of the signals our actions send to our workforce, and one way we communicate this is through our appraisal process. We have continued to reward positive behaviours and have not been affected by the recent spate of layoffs. Our priority has always been to make decisions with long-term benefits in mind, and we strive to ensure that our employees share this perspective.”

Siddhartha Ghosh, CHRO, Adani Wilmar

 

The Correction

Comparing with that of ‘appraisals 2022’, Chakraborty says, “People have seen the upsides of 2022, and now they should be ready to embrace the lows as well.” She believes the current situation to be like a course correction.

“People will now recalibrate their lives, and their expense outflows in accordance with the appraisal.”

According to Ruhie Pande, CHRO, Godrej Capital, “The technology market has become overheated and saturated with incentives such as bikes and gold chains being offered to attract talent. This resulted in a correction in the market, stabilising compensation ranges and reducing offer drop-offs”.

Pande believes that the market will continue to correct itself over the next two years, leading to equalisation of compensation ranges. However, it is to be noted that the market is currently subdued, and the technology team retention has improved, which is positive for the overall technological advancement of the group.

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