Why you should give generous pay hikes this appraisal season

Its appraisal time and you would be busy trying to figure out optimal increments that will keep your employees happy. Apart from the Consumer Price Index and the Industry averages, here’s are reason why you must raise it more than before , lest you run the risk of having employees unable to make ends meet and thus look out.

It’s an age of instant gratification. Gone are the days, when employees would save patiently for 2 decade before buying a 2 BHK flat under the Lower Income Group lottery scheme of DDA.

Employees now need it today, a flat, car, smartphone and thus the mantra is

Desire first. Discipline later.

They want everything now. Period!

There are 4 enemies which all of us have fallen prey to:

 

Social Media

Bored by you’re the mundane nature of your job, when you log on to your Facebook account for salvation, onto to confront these pictures all over.

Immediate Reaction: “Whoa. When my friends are doing this, why not me?? It’s this innate human tendency to keep pace with one’s peers that is at work.

It immediately plants the aspiration for the trip of that international exotic location, purchase of Royal Enfield Himalayan, the fancy meal at that happening restaurant. Even if I cannot afford it, who cares? There is this credit card company which is always ready to finance these budget-breaking dreams.

Nearly 40% of American adults with social media accounts say that seeing other people’s purchases and vacations on social media have prompted them to look into similar purchases or vacations”

– American Institute of Certified Public Accountants.

 

Paying thru Digital Means

Did you notice that when you paid by cash instead of a credit or debit card it felt more painful though logically the amount still remains the same?

It feels ‘less expensive’ and “less painful” to pay with the card or digital wallets vis-a-vis cash

This is known in Behavioral Economics as the “Pain of Paying”

When you can see the money moving out of your pocket into someone else’s hand, the visibility and tangibility increases the quantum of pain associated with a payment

This pain is significantly reduced by electronic forms of payment (Paytm, credit card, debit card etc) – which allow us to instantly receive pleasures of consumption while making payments even more invisible and intangible

“You’re not faced with actually spending that cash and to think about it. It kind of just disappears… It makes it easier to ignore what you’re paying, what your bank account looks like when you’re making that payment… You can avoid bad news easier.”

Queen’s University professor Nicole Robitaille

In India, the trends suggest that

  • Mobile Wallet Users exceed Mobile Banking Users and are 3 times the number of credit card users.
  • Total payments through digital instruments is likely to increase 10X by 2020.
  • Proportion of non-cash transactions is estimated to overtake cash by 2023 as per BCG-Google study

    Lenders all over

    There is an additional element to the ““Pain of Paying” concept.

    The pain of paying is reduced when there is a period of time gap between when you purchase and when you pay.

    Paying thru credit cards/auto debit EMIs significantly reduces the guilt and pain associated with the spending and tempts us to spend more.

  • Indian consumer debt levels are significantly rising.

  • Interestingly, delinquencies on the unsecured loans are lower for most banks compared to their corporate loans. Thus ‘retail credit’ becomes the focus as banks have burnt their fingers lending to the corporate players – the Kingfishers of the world.
  • Interestingly, delinquencies on the unsecured loans are lower for most banks compared to their corporate loans. Thus ‘retail credit’ becomes the focus as banks have burnt their fingers lending to the corporate players – the Kingfishers of the world.
  • he economics research wing of India’s largest lender, State Bank of India (SBI), said in a report that the household debt as measured by credit outstanding per credit card in India has been rising. In nominal terms, the outstanding per credit card stood at Rs 8,668 as of February 2016.

  • Marketers

  • If you thought you were in control of all your purchase decisions and were rational, think again. Most buying decisions are secretly manipulated by marketers.
  • In a perfect world, there would be no substitute for a quality product offered at a bargain price.

    But this is not a perfect world. Often, the only thing between mediocrity and market dominance is the kind of devious plan that would make a supervillain proud. Marketers know how to encourage us to spend and how to work out natural impulses to increase our willingness to part with our cash.

    Final thoughts

    As your employees consciously/unconsciously fall into the trap of spending more and saving less, please do consider giving them generous hikes, this appraisal season J

    You will get their blessings J J

    On a more serious note, in case you feel you do not need to be in the top quartile of paymasters in the country and your work itself attracts, please remember that the days when employees dreamt of that “someday when we have enough money and courage to go out and do things that really matter to us” are over.

    Retaining employees and preventing them from being always out on the job hunt will require some serious revision in the thought process.

    Needless to say, these are some of the realities that will guide Compensation & Benefits practice in the times of come.