K Ram Kumar, ICICI Bank's Group Head of Human Resources, says even by his conservative estimate, the Indian banking industry has been seeing an annual wage inflation of 12-15 per cent over the past few years.
"That's unsustainable. For, worldwide experience shows that any economy, which has to sustain a wage CAGR of 6-7 per cent, slips into recession within 15 to 20 years," he says.
In any case, such salary hikes could see costs blowout in relation to productivity in the event the market dampens. But there is no stopping as far as India Inc is concerned and for the fifth consecutive year, Indian companies are projected to report double-digit salary increases.
According to Watson Wyatt, the salary increases in 2008 are likely to be 15 to 25 per cent more than a year ago. China is expected to come in second with projected raises of just about 8.5 per cent, followed by the Philippines with 8.3 per cent.
India, Ram Kumar feels, is close to catching up with the rest of the world in salaries, even in absolute terms. For example, a salary of $100,000 (around Rs 40 lakh) may seem low when compared to Western standards. But based on purchasing power parity, a $100,000 salary in India is similar to $250,000 in the West.
Ram Kumar is right, as a Hewitt survey showed that the traditional gap between salary hikes offered by locally-owned and multinational companies has closed with Indian private sector companies projected to raise salaries by 15.5 per cent in 2008 compared with 14.9 per cent offered by multinationals.
The HR head of India's largest private sector bank blames the poor governance structure in most companies for the wage spiral. Most new-generation banks in India have acted like parasites resorting to poaching and have found a convenient excuse called talent scarcity, Ram Kumar says.
HR departments can find a way out of this "dubious salary game" if they behave like supply- chain managers and analyse the cost-income ratio before advising the top management on the annual salary bill, he says. After all, conventional business sense says you can't procure raw material at a cost which is out of tune with the end-cost of the product being manufactured.
For the record, ICICI Bank gave an average salary raise of 10 per cent in the last financial year.
Ram Kumar doesn't spare outside consultants also who often come up with dubious salary surveys. "It's almost like some companies rigging up sales performance to window-dress numbers," he says. A few years back, ICICI Bank had engaged a consultant to advise it on the industry salary levels for one of its top jobs. The consultant came up with astounding numbers. A little bit of enquiry found that the consultant has handpicked only a few new unlisted banks which pay top-drawer salaries just to poach people.
"I asked the consultant why he hasn't included other banks which pay lower than us. There was no answer and hence I dumped the report," Ram Kumar says.
The other problem is the MBA-obsession of most banks which mark up the cost of recruitment. In the process, these banks forget that they are paying more price than the value these employees create. For example, there are many foreign and private banks where MBAs are manning the teller machines!
So what does ICICI Bank, which recruits over 15,000 people every year, do to keep away from the mindless salary game? More than mindless salary increases, the bank is offering access to opportunities that are not necessarily regarded as current year's financial trade-offs. These include access to world-class training, the opportunity to be located in different parts of the country or the world, opportunities for personal development, and so on.
There are other innovations too. For example, the bank recruits engineers and, over a period of time, plans to have one engineer for each branch. Engineers had never been considered as potential recruits by the banking industry at least for branch-related work, but ICICI has a sound logic in place.
These engineers are supposed to implement process efficiencies in the branches - whether it is redesigning the branch layout, or the height of the counter, or cutting down the customer interaction time. In the process, this innovation has opened up a potential talent pool of 500,000 engineers that pass out every year.
The bank has also broken free from the 'only English-speaking' people recruitment philosophy. For, it believes that language and social skills can be taught while intellect cannot be teachable. ICICI Bank has gone off the beaten track to find intelligent boys and girls from B- and C-class towns who otherwise cannot have access to higher education.
So did you think raising salaries is the only way to win the talent war?