Policy bias in salary cuts fuel discontent

Bengaluru: Various cost optimisation measures by Indian IT firms including reduction in variable pay cut, halting increments and other salary-related components are fuelling discontent among mid and senior level employees.

This is because of the fact that top management level salaries, especially that of chief executive officers (CEO) remain untouched and out of the ambit of such cost cutting moves.

"There is definitely discontent among senior and mid-level employees due to such measures. As the top management remains immune from such measures, it is not exactly a 'lead by example' kind of situation. However, shrinking opportunities may not lead to high attrition," said an industry source familiar with the development.

Amid contraction in operating margin, IT firms such as Infosys & Wipro have announced to reduce and defer variable payout to mid-level and senior staffers to reduce wage cost. Indian IT companies spent around 62 per cent of their revenues towards salaries and wages of their employees in FY22. During the first quarter of FY23, wage cost was on an average about 57 per cent of IT companies' top line.

Such rise in average wage cost was due to the salary hikes and increments given to employees in the last one-and-a-half years to contain rising attrition.

High attrition and wage cost have taken a toll on the operating margin of Indian IT firms with most of them seeing a contraction in their operating margins. Market leader Tata Consultancy Services' (TCS) operating margin fell to 23.1 per cent in Q1 of FY23, a drop of 190 basis points compared with the previous quarter.

Infosys' margin contracted 1.5 per cent sequentially to 20 per cent during this period. For Wipro, operating margin dropped 200 basis points to 15 per cent in the first quarter. Most mid-tier companies also saw fall in operating margins during this period.

To stem further slide in the margin, IT companies have started to cut costs through various optimisation measures. However, the top management of any firm is yet to take any reduction in their compensation so far. Rather, many top CEOs have seen their compensation rising in FY22 with sound hikes for the ongoing financial year.

For instance, Infosys' CEO Salil Parekh will draw up to Rs79.75 crore in FY23 as per the new contract in FY23, a massive 88 per cent jump in annual remuneration. Parekh took home a salary of Rs71 crore in the fiscal year ended on March 31, 2022, that included Rs52.33 crore from exercising RSUs (Restricted Stock Units) granted to him earlier.

Wipro CEO Thierry Delaporte's annual pay package in FY22 was Rs79.8 crore, which was one of the highest in Indian IT industry.