Employees of top tier Indian IT companies, who are used to double-digit wage hikes annually, may be in for a disappointment. With rising wage costs dealing a heavy blow to margins, coupled with slow business growth, IT companies feel they may no longer be able to afford double-digit increments across the board, going forward.
During the first quarter this fiscal, wage hikes impacted margins of top IT firms by anywhere between 230 ? 350 bps. Margins of Infosys fell 300 bps due to a 10?12%, wage hike, while TCS had a 233 bps impact, with hikes in the range of 12-14%. Margins of HCL Technologies dropped 300 to 350 bps for the March-June quarter, with hikes averaging 12-14%. For Wipro, hikes were between 12-15%, effective from June 1, and are likely to impact margins in the second quarter.
?This kind of wage hike is not sustainable. We have to look at more moderate increases. Gone are the days of average hikes across the board. We will have to look at high performers and key people who will be paid more. Critical roles and people who interact with customers need to be rewarded and will be paid the best,? said Saurabh Govil, senior vice-president, (HR), Wipro Technologies.
?To combat wage cost company should drive differentiation among performers and non-performers. It should have the right people at the right job for maximum utilisation. And there should be hiring mix between campus and lateral,? adds Govil.
The industry has been using salary hikes to curb sky rocketing attrition levels thus far. However, from now such hikes will have to be restricted only to the top performing individuals, and not be effected on an average through out the organisation. Companies will also have to look at larger performance linked salary components, and levers outside of big monetary jumps to share benefits with employees.
Nandita Gurjar, senior vice-president and group head, (HR), Infosys, said, ?Given the current rate of business growth, the higher double digit increases which the software industry has been used to, will be an aberration and not an industry norm anymore. Variable pay linked to business growth is a big lever and sharing benefit costs with the employee will be another lever.?
Even at the entry level, IT companies have not given recruits much to cheer about. Freshers salaries have remained stagnant at Rs 3 lakh to Rs 3.3 lakh for the past two to three years, and most companies have no immediate plans to revise them.
HR consultants feel IT firms were heading for this. ?These wage hikes are obviously not sustainable. But these companies have always been so reactive in building employee engagement that short term fix has always been the way forward. Reward has centered around the amount of money that is getting paid to employees,? said Sridhar Ganesan, practice leader, Reward Services, India and South Asia, Hay Group, a global management consulting firm.
However, some believe that at the current rate of inflation, companies may not have an option but to continue with such hikes. Vivek Punekar, chief human resource officer, HCL Infosystems, said, ?Double digit pay hikes will always be a reality, but given to top performers, who will get 15-25%. Average performers will be given between 8-10%.? The company had given an average hike of 10% this year.
In such a scenario, companies will look at extracting more out of their employees, increasing productivity and employee utilisation.
Som Mittal, president of Nasscom, said, ?If you set this year’s average against inflation, there was no real increment. However, wages have to be delinked from margins. Companies can not compromise here to manage margins. What we will see is better utilisation of employees, more business generation, and better use of bench strength, and innovative resource management.?
Utilisation rates for TCS and Wipro for the first quarter this fiscal had improved and were at 83.2% and 81.6% respectively. The same for Infosys, however, had dropped to 74.9%.
