BENGALURU: Last week when Nasdaq-listed Cognizant rolled out an increment to employees after a four-month delay, it had to face criticism on social media as wage hike starting as low as 1%.
Soon, the company in a statement said the merit increases for this cycle are tied to both individual performance and macro industry dynamics. As per sources, employees with the highest rating received only a 4.5% salary hike. Tata Consultancy Services (TCS) rolled out double-digit wage hikes for high performers and an average 4.5% to 7% wage hike for the rest of the employees, with effect from April 1.
Infosys’ last wage hike was in November 2023. Its CFO Jayesh Sanghrajka said during the Q1 earnings conference that they take multiple factors into account (inflation, peer practice) in case of a wage hike.
“At this point we are evaluating all of that..we have improved our variable pay this year versus the last quarter and last year,” he said.
These companies are announcing single-digit hikes due to various factors including inflation. “Tech sector’s compensation spend and increments are linked to the revenue performance and outlook for revenue growth. The current compensation spends and increments reflect sluggish performance on these two parameters,” said Krishna Gautam, business head, Direct Hire – IT, Xpheno, a specialist staffing company.
As per Xpheno, the collective of top 7 IT services firms have seen 3.4% annual revenue growth in the quarter ending June 2024 as against June 2023. The collective has accordingly controlled compensation costs with 2.8% annual growth for the same period.
The compensation cost controls have been driven through headcount reductions and moderate hikes for performance and retention. The 12-month period ending June 2023 saw a 12.4% revenue growth with a compensation cost growth of 14.2%.
Top 7 IT firms saw revenue growth of 3.4% in Q1
According to Xpheno, the collective of top 7 IT services firms have seen 3.4% annual revenue growth in the quarter ending June 2024 as against June 2023. The collective has accordingly controlled compensation costs with 2.8% annual growth for the same period
And the 12-month ending June 2022 saw a 19.2% revenue growth driven on a compensation cost growth peak of 24.3%.
“Having incurred high spend manpower absorptions during the buoyancy of 2021 and early 2022, the tech sector is now operating on tighter cost controls and austerity measures to preserve margins in uncertain market conditions,” Gautam said.
The restrained salary hikes of 2% to 4% in IT companies this fiscal year are primarily driven by global economic headwinds and tightening profit margins, said Ramesh Alluri Reddy, CEO, TeamLease Degree Apprenticeship.
While the IT sector had been offering robust increments during the pandemic to retain top talent, the current economic landscape is more challenging.
“Global uncertainties and potential slowdowns in key markets like the US and Europe have led to cautious client spending, directly affecting the revenue growth of Indian IT firms. Additionally, rising inflation and the need to invest in next-generation technologies are exerting pressure on profit margins, prompting companies to adopt a conservative stance on salary increments," he explained.
Moreover, IT organisations are increasingly prioritising operational efficiency and are channeling significant raises towards employees in strategic roles or those possessing niche skills that are critical for business transformation.