Maruti Suzuki Raises Wages By More Than 50%

Maruti Suzuki India Limited (MSIL) has announced the largest raise in salary for its permanent workers in the company’s 30-year history. This move comes in after a series of strikes and production halts seen in the last 18 months as a step towards working on the labour problem that the company has been facing. MSIL would increase the salary of its permanent workers at its Gurgaon manufacturing facility by an average of Rs 18,000 per month with the range of hike in line with seniority and experience of the workers. This increase would be spread over a period of three years wherein workers can avail 80 per cent of the raise in the first year.

With the average salary of these workers being in the range of Rs 35,000 to Rs 39,500 per month, the hike amounts to about 50 per cent. Also, the increase would be effective retrospectively from April 1, 2012. In addition to the steep increase in wages, MSIL has also covered incentives by increasing the travel allowance of Rs 1,200 per month and has also doubled medical coverage to Rs 5,500. The company has also introduced an interest-free loan package of Rs 20,000 for its employees.

In addition to this, the company had earlier in August approved a low-cost housing scheme for at least 5,000 workers for which the company would be buying land in December in Haryana to assist the construction. MSIL had reached an advanced stage of negotiations for a wage increase with the company’s Manesar workers who had demanded a raise of Rs 15,000 to Rs 16,000 per month. The management had made a counter offer of a raise of Rs 10,500 per month but the violent incident that occurred at the Manesar plant had left the issue pending.

MSIL’s financials had come under pressure in FY12 due to rising commodity prices, currency fluctuations and a series of strikes leading to a production halt of 60 days in all. This led to a drop of 3.2 per cent in revenues and 14.32 per cent decline in operating profit. Meanwhile, with currency fluctuations worsening in FY13 along with 32 days of full production lockdown, not to forget the period of only partial production at the Manesar facility, the financial scenario of MSIL is once again under pressure.

Moreover, the company plans to gradually phase out temporary workers (who were being paid one-third of the permanent workers’ wages) and replace them with permanent staff. This would directly increase the company’s staffing costs even as the recent step to boost salaries would further hamper MSIL’s performance. In the last five years the company’s personnel expenses have been in the range of 2.12 per cent and 2.58 per cent of the total expenses. This though would see a drastic increase now.

Though it’s clear that margins would be pressured and personnel expenses would shoot up, the company in the last 18 months has been estimated to have lost Rs.6,000 crore on account of production shut downs. Against this, with personnel expenses at Rs.843.8 crore in FY12, a heightening of employee benefits seem to be a much better option to avoid the social and financial damage capable of being caused through solving labour issues.