The days of quantum leaps in salaries are over at Indian e-commerce firms

Not impressed.
Not impressed.
Image: Reuters/Sivaram V
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Indian online retailers have been among the best paymasters over the last few years, but those employed in the sector may be in for a rude shock this appraisal season.

Last year, e-commerce companies had dolled out an average 10-30% hike. That may not happen this year, though, as venture capital (VC) funding gets harder to come and focus on profitability increases, human resource (HR) experts believe.

“Increments in the e-commerce sector will be on the lower side this year because these companies are currently under pressure to keep costs low,” CK Guruprasad, partner at Chicago-based HR firm Heidrick & Struggles, said. “It won’t be a surprise if some smaller players don’t give any increments at all.”

Most large Indian e-commerce companies, including Amazon India, Snapdeal and Paytm, roll out increments in April. Bengaluru-based Flipkart has two appraisal cycles—ending June and December.

Snapdeal said it would give its top performers an increment of about 20% this year. Last year, 20% was the company-wide average at Snapdeal. It did not share this year’s average figure.

“Post Snapdeal’s move to the trimester-based performance review system, we have strengthened our meritocracy focus. The increment roll-out for this year recognises top performers in the organisation and rewards them for their contribution in our growth journey,” Saurabh Nigam, vice-president, HR, Snapdeal, said.

Flipkart did not respond to our queries. Paytm said its increments will be “in line with” last year’s. “People get paid based on their performance and ability to deliver,” Amit Sinha, vice-president at Paytm said. “If they are performing well, they will get superlative salary growth.”

The recent months have not been easy for India’s e-commerce sector given the overall funding crunch, inflated valuations and new government regulations that may add to the troubles of some players.

The Indian e-commerce industry is currently valued at over $14 billion and has been growing at a compounded annual growth rate of 30% over the last few years, according to industry body Nasscom.

Yet, despite being in business for nearly a decade, most large e-commerce players are far from break-even. This is keeping investors away. Up to 46% of the participants in a recent study conducted by news publisher VCCircle said they were keen on investing in consumer service startups in India, but only 23% showed interest in e-commerce.

To make things worse, last month, investor Morgan Stanley devalued e-commerce posterboy Flipkart by 27% to $11 billion. Such a correction could mean bad news for the entire sector.

Source-based media reports have said that Flipkart is desperate for funding but isn’t getting any at the valuation it desires. Its reported funding talks with Chinese e-commerce giant, Alibaba, failed due to the same.

In such an environment, it may not be the best move for e-commerce players to dole out high increments that will add to mounting costs.

“Giving big increments will give out a wrong signal to investors because they are expecting the companies to focus on lower costs, unit economics and break even,” Guruprasad of Heidrick & Struggles said.

Tight spot

In the last two years, the lure of fast growth and stock options has prompted thousands to give up cushy jobs at traditional businesses to join the e-commerce sector. These could be testing times for such professionals.

“Until last year, candidates could get about 50% increment when they jumped from one e-commerce startup to another within one year. Companies were hiring and poaching. That’s not happening anymore. In fact, I see candidates who want to change jobs but they are either getting the same salary package or even lower pay,” Kris Lakshmikanth, chairman and managing director at recruitment firm, The Head Hunters India, said.

Indian e-commerce companies frequently use stock options to attract talent. But with valuations under question, shares have become less attractive, Lakshmikanth said.

“The next 12-18 months will be the true test of those employed in the e-commerce sector. They got giant hikes and stock options when they joined. Now they have to prove whether they believe in the industry or not, and will they see this phase through,” Guruprasad said.