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Cut in variable pay not to fuel attrition

Trimming or deferring variable pay indicates that situation favouring IT firms in managing attrition threat, say industry experts

Cut in variable pay not to fuel attrition
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Easing Pressure On Margins

- IT firms reducing variable pay

- Infosys reduced variable to 70%

- TCS, Wipro also decided to cut variable pay

- TCS deferred it by a month

- No variable payouts C-suite level execs

Bengaluru: Indian IT services firms' confidence in managing the employee attrition at manageable level is prompting them to defer or reduce variable pay out to employees in recent months. This is an early indication of slowing momentum in the job market that has been red hot in the last two years with wage cost impacting operating margin of domestic IT services companies.

"The move to defer variable pay out or reducing such payment to employees indicates that companies are quite confident of managing attrition levels. We are likely to see moderation in attrition levels in coming quarters," said Pareekh Jain, an IT outsourcing advisor & founder, Pareekh Consulting.

India's second-largest IT firm Infosys this week has decided to reduce the average variable pay out of employees to 70 per cent. This is largely seen as a move to protect margin which has come under pressure in recent quarters. In the first quarter of FY23, operating margin of Infosys contracted to 20.1 per cent from 21.5 per cent reported in the preceding quarter. The Bengaluru-headquartered firm has guided for an operating margin level of 21-23 per cent in the ongoing financial year.

Earlier, Tata Consultancy Services (TCS) and Wipro have also decided to defer or reduce their variable pay out to employees. TCS has delayed variable pay out by a month for grades C3A, C3B, C4, and others apart from delay in paying of performance bonus for certain employees.

Wipro in a mail informed its employees that it would hold back variable pay outs for the April-June quarter for mid and senior-level employees amid significant pressure on margins. With this move, employees belonging to C bands and above (managers to C-suite level) will not receive any variable payouts, while associates in A and B bands (freshers to team leader levels) will receive 70 per cent of the target variable pay for the quarter.

"We have seen some continued pressure on operating margins. Our Q1 margins were lower at 15 per cent due to inefficiency in our talent supply chain, project margins and our investments in talent, technology and solutions during the quarter. Given our underperformance on margins this quarter, our variable pay (including sales incentives) takes a hit," the communique said. Wipro's operating margin stood at 15 per cent in Q1 of FY23, which was the lowest since FY19.

Most of Indian IT firms have reported increase in attrition number in the first quarter of FY23. However, hiring momentum has come down owing to slowdown fears and funding winter in startup ecosystem.

The move to defer variable pay out or reducing such payment to employees indicates that companies are quite confident of managing attrition levels. We are likely to see moderation in attrition levels in coming quarters

- Pareekh Jain, IT outsourcing advisor & founder, Pareekh Consulting

Debasis Mohapatra
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