Indian corporations are navigating a cooler job market by fundamentally reshaping how they retain their most valuable asset: high-performing employees. While companies remain willing to pay to keep their best talent, the terms of engagement are undergoing a significant recalibration. The era of straightforward, hefty counter-offers is giving way to a more structured approach combining moderated salary increases with contractual controls like extended lock-in periods, clawback clauses, and deferred compensation.
The Cooling Market and Sharper Differentiation
The shift in strategy is underpinned by a noticeable cooling in the job market. Data from a Mercer study reveals a sharp decline in voluntary attrition across India Inc, dropping from 13.1% in 2023 to 11.7% in 2024, and then plunging to just 6.4% in the first half of 2025. With fewer employees switching jobs, employers have regained leverage to revisit retention terms while keeping a tight rein on costs.
This year's appraisal cycle is projected to deliver average salary increments of 8.5% to 9.5%, a moderation from the boom years of 2021 and 2022 when hikes averaged 10.6% and 9.7% respectively, according to consulting firm Aon. However, the distribution of these hikes is becoming more polarized. While a top performer typically earns about 1.7 times the company's average raise, employees in critical roles like artificial intelligence (AI) and data architecture are expected to see increments exceeding twice the average.
Companies have also made performance evaluation frameworks more stringent. Many firms using bell-curve systems have steepened the curve, clustering a larger share of employees in the middle category and narrowing the bands for both high and low performers. This allows for selective, cost-effective rewards for exceptional talent.
Contractual Controls: Lock-ins and Clawbacks Go Mainstream
The most notable change is the move from pure cash incentives to contract-based retention tools. Lock-in periods and clawback clauses, once primarily reserved for senior CXOs, are now being deployed more widely across middle and senior management.
"About two years ago, a high performer might receive a 100% counter-offer. Now, an employer may match an external offer but attach a two-year lock-in and clawback options," explained Upasana Agarwal, Partner for Professional and Financial Services at ABC Consultants. She noted that in a weaker job market, a direct counter-offer without strings is less common as companies have become more cost-conscious.
This trend is evident even at the campus recruitment level. During recent placements at the Indian Institutes of Technology (IITs), several prominent companies integrated clawbacks directly into their offer letters. For instance, TVS Motor Ltd's ₹300,000 joining bonus came with a three-year clawback clause. Similarly, IDFC Bank Ltd, Siemens Energy, and EXL also incorporated such conditions. A clawback requires an employee to forfeit a portion of their compensation if they exit before a stipulated period.
Equity, Incentives, and Non-Monetary Levers
Listed companies are increasingly turning to stock-linked compensation as a tool for retention without immediate cash outflows. Boards are showing greater openness to performance-linked equity instruments like Performance Share Units (PSUs) and Restricted Stock Units (RSUs).
"Although proxy advisory firms are not very keen on performance-based units, some of our listed clients are chalking them out. Boards are keen to implement these programs for high performers in both middle and senior management," shared a senior partner at a top-three consulting firm, requesting anonymity. Under PSUs, shares are granted only upon meeting specific company milestones, while RSUs vest over a set period, as seen in Texas Instruments' four-year vesting offer during IIT placements.
Beyond pay, companies are investing in professional coaching programs for middle and senior managers and exploring internal mobility across group companies as key retention strategies. One of India's largest business houses is actively working with consultants to facilitate moves for senior managers across its different group companies, offering career growth as an alternative to pure monetary rewards.
The driving force behind these changes is clear: cost control. An analysis shows employee costs for Nifty 500 firms were 15% of net sales in the September quarter of 2025. While down slightly from 15.4% a year earlier, the pressure to manage long-term expense growth is steering India Inc towards sophisticated, conditional retention strategies that protect their top talent without disproportionately inflating the fixed cost base.
