Variable pay: Which IT majors have scaled back, who's giving 100%?

Software services firm Infosys has scaled back the average variable payout (VA) of employees to about 70% while Tata Consultancy Services (TCS) denied reports of a delay in payouts and Wipro said there is no change in its salary hike plans.

Recently, India’s second-largest IT services company Infosys, scaled back the average VA to about 70% for the June quarter, or Q1, FY23 amid margin squeeze and high employee costs, a PTI report said citing sources.

Wipro’s pay hike

Wipro had held back VA mainly due to pressure on margins, inefficiency in its talent supply chain and investment in technology, reports said. The IT major said salary hikes for employees will be effective from September 1 but did not mention anything about variable pay.

Also read: TCS attrition rate rises to 19.7%; headcount crosses 600,000

“There is no change to our earlier statement on salary increase, and hikes for our employees will be effective from September 1, 2022. We have also completed the first cycle of quarterly progressions effective July 1, 2022… We have no further comments on the quantum of variable pay,” the company told Mint.

Amid reports of delay by a month in quarterly variable compensation, TCS said it is “normal process” and 100% VA is being paid for the first quarter.

“We have come across completely incorrect reports on our compensation. Variable pay is either paid in month one or month two as per the normal process and there is no delay in this process. Hundred per cent VA is being paid for Q1,” TCS said, according to a MoneyControl report.

“The performance bonus for Q1 FY23 is yet to be finalised for C3A, C3B, C4, and equivalent grades. This will be paid along with August 2022 payroll to eligible associates,” the email sent by TCS to employees read. The email did not have details regarding why the performance bonus had not been finalised at the time, the report added.

Also read: All-time-high attrition proves biggest challenge for Indian IT firms

According to the report, Wipro will not be giving variable pay to those in B and C and above (people at mid-manager level and above), while junior employees will receive 70% of their variable payout.

Q1 results

Last month, India’s largest IT services firm TCS reported a 5.2% year-on-year rise in consolidated net profit to ₹9,478 crore for the first quarter ended June 30. The consolidated revenue from operations increased 16.2% year-on-year to ₹52,758 crore in the first quarter of FY23. The company declared an interim dividend of ₹8 per equity share of Re 1 each.

Wipro reported an about 21% year-on-year fall in its consolidated net profit to ₹2,563.6 crore for the first quarter ended June 2022. The profit for the period (attributable to the equity holders of the company) stood at ₹3,242.6 crore in the year-ago period. The net profit was down 20.6% on a year-on-year basis.

In July, Infosys reported a lower-than-estimated 3.2% rise in June quarter net profit amid escalating costs. However, the company raised its full-year revenue growth outlook to 14-16% citing strong demand and robust deal pipeline.

Also read: Infy, TCS register record recruitment and attrition rates in FY 22

The company maintained the margin guidance at 21-23% but made it clear that with the increase in cost environment, it will be at the lower end of the margin outlook. Infosys’ operating margins were at about 20% in Q1 FY23.

Increasing costs

Higher employee benefit expenses, sub-contracting costs, and travel expenses had pushed up overall costs for the Bengaluru-headquartered Infosys in the June quarter.

As such, elevated level of attrition leading to higher employee costs is denting the profitability of the Indian IT industry.

Also read: Citing poor output, Wipro stops variable pay for senior, mid-level staff

Compensation hikes impacted margins by 160 basis points, and utilisation dipped due to impact of new freshers coming in.

The company asserted that these were more in the nature of “investments” given the robust demand scenario, and assured it will be looking at cost optimising levers such as better utilisation, and more automation.