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In the sector-wise coverage following the recent <keyword id="3256007" type="UNKNOWN" weightage="20" keywordseo="Aon-Hewitt-Salary-increase-report">Aon-Hewitt Salary increase report</keyword> for this year, next up is the automobile industry! 
	 While speaking to <keyword id="4263155" type="UNKNOWN" weightage="20" keywordseo="amit-kumar-otwani">Amit Kumar Otwani</keyword> - Sr. Consultant, Rewards, <keyword id="6462982" type="COMPANY" weightage="20" keywordseo="Aon-Hewitt">Aon Hewitt</keyword> - we tried to understand how this key industry is moving forward in terms of its competitiveness, salary increments to employees, pay differentiation and several other parameters in the past couple of years, and what these would look like in future. 
	Here’s an overall outlook of the automotive sector: 
	 
	​Automotive sector continues to project a double-digit salary increase for 2017. However, it has taken a drop from 2016 actual spends. What is the reason for this? 
	In the auto industry, salary increases have gone down from 10.7 to 10.3. There are few things that have happened this year in addition to a few trends we have been seeing over the past few years. From a long term perspective, auto industry promises a long term growth. If you look at the Government's Automotive Mission Plan 2016-26, it says the automotive industry is expected to grow four-fold by the end of 2026 and it will grow at a CAGR of about 10% in terms of sales volumes. So, the long term story from an automotive perspective is intact and is growing well. 
	 
	​However, if we look at what happened last year, the overall domestic sector growth was at 6.05% over the same period last year, and exports saw a decline. There was an impact from demonetisation as well. It impacted the two wheelers sales volumes, luxury car automakers and the tractor industry. This is the reason why the business situation is seeing a cautionary phase. The industry has not grown very well, at least from a demonetisation perspective last year.

	 
	​The way automotive employee costs have grown also needs to be taken into account. It has been growing at about 14.08%, while some of the other business metrics (revenue and other operating expenses) have grown in the range of about 8-10%. Average wage cost of this sector which was about 4-5% five years back has reached 6%. This is putting pressure on the employee cost item in the PNL accounts of organisations and therefore the overall increments have been coming down. It is expected that it may continue to hover around 10% or may be slightly less than 10%.

	 
	Also, in the last couple of years, salary increases in this sector has shown stability overall by hovering around 10.5 %. What is the reason for this figure sticking to a 10% range over a long period of time? 
	Why we will not see this figure going below 10% is because automotive industry has a long gestation period. Therefore, this industry always prepares talent from the next 5-year time frame for the simple reason that if a new product development needs to be done, talent needs to be intact. Moreover, since a lot of companies are building R&amp;D centres in India, automotive companies want to stay competitive with respect to some of the other industries as well. 
	 
	Tell us about attrition levels that Auto sector is facing? 
	Overall attrition has gone up from 9 to 10.2% over the past year. This increase is happening on account of two functions: Sales Marketing and R&amp;D. Since a lot of other organisations are setting up their R&amp;D centres, and talent is mobile across India and not restricted to a particular region, attrition is high in R&amp;D. Moreover, Sales and Marketing is always in demand, so we see talent drifting to other lucrative sectors whenever they can. 
	 
	How is this key industry moving forward in terms of its competitiveness talent-wise, salary increments to employees, pay differentiation? 
	If I compare auto to consumer/telecom sector, the base compensation in automotive is slightly lesser than them. But if I compare it to a Hi-tech sector or a engineering manufacturing sector, auto industry is better placed. That's the reason why salary increments still continue to remain stable at 10%. Since base cost is slightly lower, they have to remain competitive to other industries as well. 
	 
	Pay for performance has been penetrating well in automotive sector. The multiple of salary increases which were provided to top performers at an all industry level was 1.5x in 2013, it has risen to 1.7x. Like other industries, automotive industry also realizes that pay for performance culture is needed and that is why it has been providing disproportionate salary increases to their top performers, though still they are at a below overall India level. 
	 
	In terms of <keyword id="797078" type="UNKNOWN" weightage="20" keywordseo="Pay-compensation">pay compensation</keyword> (for entry, midlevel and senior management), where do you see the Indian automobile industry when you compare it globally? 
	If I were to compare the automotive salary at the entry level for Indians compared to counterparts in developed economies like Germany, US and Japan on purchasing power parity adjusted basis, the automotive industry pays approx. 40% at junior level compared to them. For senior management, automotive industry is moving closer to the global standards in terms of compensation. It is in the range of 70-80%, but it's inching upwards. From a cost arbitrage perspective, India remains to be a destination where automotive industry is investing here and developing their R&amp;D centres and operational units. 
	 
	One thing which automotive industry needs to think about is if we continue to increase salary at 10%, will the cost arbitrage remain sustainable in the long run. 
	 
	​Taking from your last point, I’d like to ask - What are the challenges this sector is facing? 
	From a talent perspective, companies are in a fix on how to retain key talent and critical talent. There is a lot of training and development happening in the R&amp;D and Sales and Marketing functions, and organisations have also built good talent in these functions. However, the new global players coming in are ready to hire this developed and trained lot at a much higher salary. 
	 
	​Secondly, the employee costs have been growing has been rising at a much higher rate than some of the other business fundamentals. It has to grow in tandem with the revenue and profitability or be lesser than them.

	 
	​Another element is the way fixed and variable costs are structured. If you compare the fixed to variable ratio either to global levels or some other mature industries in India, automotive has higher fixed cost. That's where it sees increase in overall employee costs. What they should do is manage the fixed to variable in such a way that the fixed increase remains in check.

If you are a top performer in the automotive sector, you don't have to worry about your salary hike

In the sector-wise coverage following the recent <keyword id="3256007" type="UNKNOWN" weightage="20" keywordseo="Aon-Hewitt-Salary-increase-report">Aon-Hewitt Salary increase report</keyword> for this year, next up is the <keyword id="20077" type="UNKNOWN" weightage="20" keywordseo="automobile-industry">automobile industry</keyword>! 
 While speaking to <keyword id="51561" type="PERSON" weightage="20" keywordseo="Amit-Kumar">Amit Kumar</keyword> Otwani - Sr. Consultant, Rewards, Aon Hewitt – we tried to understand how this key industry is moving forward in terms of its competitiveness, salary increments to employees, pay differentiation etc in the past couple of years, and what these would look like in future. 
 
“If I look at the industry growth for last 6 years, it stood at 20% and 12% in the first two years, saw a flat growth rate of 2 to 3% thereafter, and in the next two years (2014-16) came back to roughly an 8-9%. The salary increases has also seen a rise with the rise in growth rate. In 2010-11, salary increases were roughly at 14%, it went down to 12.3% and then picked up again to reach a 10.1%. In the last couple of years it has shown stability by hovering around 10.5 %, close to the India average of 10.3%,” he says. 
 Highlighting some of the happenings in the industry as of now and correlating these numbers, Amit says that controlling rising cost of infrastructure and R&amp;D could be a major challenge for the <keyword id="34478" type="UNKNOWN" weightage="20" keywordseo="auto-industry">auto industry</keyword> in the times to come. 
 
“Companies are increasingly investing in product development following stricter environmental norms. It is leading to a huge technical upgradation and therefore more investments. Remember, Supreme Court of India has ordered auto OEMs to produce vehicles which will comply to BS-VI norms by April 2020. This can put a lot of pressure on the auto industry to have cleaner vehicles in the times to come,” he says. 
 
Another challenge which has been discussed a lot is the demand for cars coming down due to the emergence of Olas and Ubers. However, for it to be a major-time threat there’s still a long way to go. 
 
Increasing wage costs, however, is a concern that can’t be taken lightly. 
 
“The wage cost used to be in a range of 3-5%, however, with double digit increase and also the revenue growth of the industry being slightly muted, the wage cost has moved in the range of 5-6%. This is putting a lot of pressure on the industry to control the salary increases. Moreover, if we compare it some other countries, say Indonesia, wage costs are much lower there,” says Amit. 
 
“Precisely, why we are not seeing it go up any further in India too. It’s also highly unlikely that it will go up or down in the next few years. What we expect is it will remain closely in the range of 10% because this is a new normal we are observing and companies don’t want to keep higher incremental next year in view of the wage cost factor and in order to stay competitive,” he adds. 
 
He also informs that comparing pay compensation and adjusting purchasing power parity, India has reached slightly lower mark compared to the global/emerging marketers in terms of senior management. However, he adds that at the entry level, “India is paying as much as some of the emerging countries.” 
 
“The cost advantage which auto industry, therefore, enjoys is coming into a check and therefore companies are cautiously providing salary increases which has contributed in achieving this new normal,” he says. 
 
Now speaking of talent attrition, the numbers have come down from 10-12% to 9-10% in the auto industry like in the other sectors. The reason for this dip is lack of opportunities in the sector for a couple of years now; however, Amit says looking at the uptake in the last one year, this number could go up. 
 
“There is lot of thrust from the government’s end to upscale the entire auto industry. With that some of the key companies are also investing in India. Moreover, R&amp;D institutes (by HeroMotorCorp and others) are likely to come up soon. So, I see the attrition going up in R&amp;D and Sales and Marketing in the coming times,” he says. 
 Another key area which needs focus is the pay differentiation. It’s 1.5 to 1.6 times in terms of salary increases in the auto sector this year. “Compared to the likes of <keyword id="34523" type="CITY" weightage="20" keywordseo="fmcg">FMCG</keyword>, Telecom, Banking, this number is lower in the auto sector because it’s been slightly traditional. What we recommend is that the differentiation should be sharper because of the overall pay-for-performance culture. Auto industry needs to catch up with respect to other industries in this regard,” says Amit. 
 
He also sees employees in Sales, purchase, Engineering and electronics moving to startups or e-commerce. “The auto industry is innovating itself and there is a lot of focus on electronics. This is an area where it could compete with early stage startups. Therefore, people in sales, purchase, engineering and electronics could probably get attracted to some of the early stage startups,” Amit Says, adding that overall auto industry does not have a huge threat in terms of losing its key talent to the new startups or e-commerce industry. 
 
Even as global players have already made their mark in India, Amit says as he concludes, “there could be newer players in the luxury car or motorbike segment in the future, this could as a result greater war for talent.”

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If you are a top performer in the automotive sector, you don't have to worry about your salary hike

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