Employee productivity takes a hit in FY14

Employee productivity measured in terms of the revenue earned on each rupee spent on staff -fell to a three-year low in the last fiscal year, as employee cost grew at a faster pace than revenue. The findings are based on an analysis of 403 of the BSE 500 companies on which data were available.

Each rupee spent on employees yielded revenue of Rs 12 in the year ended March 31, compared with Rs 12.40 in FY13 and Rs 12.90 in FY12. Employee cost as a proportion of revenue stood at 8.4% in FY14 - higher than 8.1% in the previous year and 7.7% the year before. The trend remains the same in employee-intensive sectors like information tech nology, banking and financial services as well as pharma.

Total employee cost over the past three years has grown at a compounded annual growth rate (CAGR) of 16.3% to Rs 4.8-lakh crore. Revenue increased at a much slower CAGR of 11.8% to Rs 57.8-lakh crore, while total expenditure rose 10.6% to Rs 44.1-lakh crore and operating profit by 15% to Rs 9-lakh crore.

"Normally, this divergence appears during periods of economic slowdown when despite revenue coming under pressure, companies cannot cut down on labour cost on account of high inflation," said G Chokkalingam, managing director of Equinomics Research & Advisory. With gross domestic product growth at a 10-year low, companies have faced slowdown in revenue growth. However, employees have had to be compensated for accelerating inflation during the past three years.

Senior human resources experts confirm this. "Despite modest growth in revenue, most companies have had to provide increments to their staff," said E Balaji, president of people services at TVS Logistics Services.

Little wonder then that companies were found to be not too keen on providing higher increments in fiscal 2014. According to the annual compensation and benefits trends survey released by Deloitte India in April, the average salary increment across sectors was projected at 10.3% in FY2014, lower than the previous year's 10.6%. However, with the prospects of economic growth looking better, employee productivity -in terms of revenues earned versus per rupee spent on employees -may see some improvement.