Decoding the pandora’s box of pay hike in edtech

Decoding the pandora’s box of pay hike in edtech

Edtech has been in a rough phase in 2022 due to the “funding winter”. While January’23 seems to be better off than the previous month, we are far lower than the levels in Jan ’22.

Pay hikes in 2023 in India are expected to be the highest globally, with real-term hikes (adjusted for inflation) likely to take place. Top increments are expected to be in the range of 15-30%, while the average hikes are expected to be around 9 -12% (according to varying sources). While this is the general average across industries, some industries are expected to perform better than others.

Getting into 2023, startups are in a tough situation across sectors. Globally, inflation is at soaring levels, leading to interest rate hikes and making the cost of capital higher. Funding has been difficult to come by, while things seem to be getting better and a lot of “dry powder” (money with VCs) is lying around, it will take time for the tide to turn.

Edtech globally has seen layoffs and startups have gone into cost-cutting to ensure survival through the winter. They are focussed on better unit economics, lower marketing spending, and a path towards profitability.

Competition in the sector will reduce due to consolidation as well as some startups not being able to survive through the phase. While there will be every effort to retain, good performers will hike , and one should put expectations in place. Most startups in the edtech space will try to run efficiently.

While a widespread hike may not be seen in edtech as a sector, there would be hikes to top performers to ensure continuity. ESOPs are another tool used to reward employees and also ensure retention. Given the pressure on the P&L and funding situation, it would not be surprising that many startups use ESOPs to rewards and retain employees.

Globally, India is expected to get the highest pay hike. Europe, given inflation rates while getting hikes may see a salary reduction in real terms, similar could be the USA.Recession and economic slowdown have been in the news globally. While most of Asia would fare well, India would continue to be at the top given the +6% GDP growth rate.

While the situation for startups is similar globally in terms of funding, the situation with regard to inflation is different across the world. Edtech is also going under stress for similar reasons where startups across the world have had to exit markets, taper growth, reduce headcount, etc to extend their runway.

While India Inc may see overall highest hikes globally ranging averaging from 9.8% – 12% some sectors will fare better than others. It is expected that technology, healthcare and life-sciences may see a higher than average hike, retail and auto maybe on the lower spectrum.

Within the startup community, the situation is expected to be different with hikes going to a smaller set of employees. Sectors within startups ecosystem may also see a differential, technology and SaaS may witness a better situation than most other sectors. Given the funding environment, startups would focus towards survival and also retention of performing employees. Most startups today are re-engineering their business models to cater to the prevailing funding environment and ensure they control costs. This means that any hikes would be given looking at cost control pressures and impact on the P&L .

Startups with ESOP pools would look at these resources to reward employees as well as retain them. An advantage of ESOPs is that the impact on the P&L would be lower compared to other similar options. As we progress into 2023, the situation is expected to get better in H2 compared to H1 for startups. With improving metrics and the funding situation getting better, employee rewards in Edtech would be a mix of hikes and ESOPs.

The author is Founder and CEO, PurpleTutor

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Author: Shirley