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Got a pay hike? Use it judiciously

Professor Calculus: Lifestyle changes are the toughest to implement, so stay conservative till we get back on the 8% growth path, says Vivina Vishwanathan.

business Updated: May 11, 2013 02:15 IST
Vivina Vishwanathan
Vivina Vishwanathan
Hindustan Times

The company is going through tough times. The grim economic scenario has continued to pose challenges of shrinking revenues and expanding costs. We should be thankful that we still have our jobs.

Have you come across such statements in the recent past? Well, over the last two years though job losses have been low, wages across sectors in India have remained almost flat due to slowing economic conditions. Your performance alone doesn’t count for increments and bonuses any more; the company that you work for should also do well for any kind of increments and bonus to be passed on to you.

It’s that time of the year and some of you may have even started getting your increments. So what will you do if your boss surprises you with a 25% pay hike this year despite slowing economic condition? And what if your employer disappoints you with no hikes citing the same reason? What you need to do should depend on how much hike you get.

Below 7%
“Across sectors we expect entry-level salaries to remain stagnant this year compared with the last fiscal,” says says E Balaji, managing director and chief executive officer, Randstad India, an HR service provider. “For employees, hikes would be mostly in single-digits.”

What should you do?

If you get below 7% increment for this fiscal, your current lifestyle will surely take a hit as the figure is below the current inflation levels. “In such a scenario, you will have to cut down on discretionary expenses as tough times are ahead,” says Vishal Dhawan, a Mumbai-based financial planner

Considering the current inflation, a below-7% hike will pinch your pocket as the year unfolds. It also means that it is time for you to invest for the future. “Spending towards skill development will be essential though this may not be the solution for all,” says Dhawan.

Between 7% and 15%
In February, HR firm Aon Hewitt’s survey projected that Indian companies were likely to give 10.3% salary increase on average this fiscal year, but that hasn’t happened so far. “As news of salary increments started coming in, the projection has come down to 8-9%,” says Sandeep Chaudhary, partner, talent and rewards, Aon Hewitt This figure is considered the lowest for the country in a decade except 2009-10.

Most sectors are expected to give a 7-15% increase. “While sectors like FMCG, consumer durables and IT are expected to give double-digit increments of 10-13%, sectors like engineering, manufacturing, infrastructure and services may see hikes in single-digits averaging about 8-9%,” says Balaji.

So, what should you do?

“Though this may seem like a raise, it is not actually one because it is just in line with inflation,” says Suresh Sadagopan, a Mumbai-based financial planner.

Though you will get more money per annum, you will have to continue the same lifestyle considering that prices will keep rising. “If your hike is equal to inflation numbers, then don’t make any changes to your investments as the increase will eat into your expenses,” says Anil Rego, a Bangalore-based financial planner.

Above 15%
You’re obviously in great demand.

“The need to retain talent has pushed companies to be more selective with salary hikes this year instead of deferring them,” says Balaji. “Our annual survey also reflects these sentiments where Indian workforce has rated competitive salary and employee benefits as the most important factor in choosing employers.” Here, then, is the opportunity for you to improve your current lifestyle and investments.

What should you do?

“Considering that you will have the urge to spend, you will have to be aware of mental accounting,” says Dhawan.

Simply put, mental accounting is the tendency to separate money into separate accounts based on a variety of subjective criteria such as the source of the money and intent for each account, which has an effect on consumption decisions and other behaviours.

“If you have got a good raise, try and keep the expenses at the same level and increase your savings exposure,” says Rego. “You can take higher risk by investing in stocks and equity mutual funds. If you have any debt, pay it off.”

No raise
Chances of getting no raise is small, but be prepared for the worst.

What should you do?

In case you don’t get any raise, it is time for you to re-look at your existing portfolio as inflation will eat into your investments. “You need to look for tax-efficient avenues and debt mutual funds as it is tax-efficient if you want to beat inflation,” says Rego. “Don’t take high risk. You will also have to avoid any kind of credit in the year.”

“Your expense should be focused on improving your skill and looking for improving your income,” says Dhawan.

Remember! Lifestyle changes are the toughest to change. So stay conservative till we get back on the 8% growth path.

First Published: May 10, 2013 21:58 IST