IT – Global IT services company Infosys recently delayed salary increases for a section of its senior and middle management employees. Other companies in the sector are tightening salary budgets and increasingly leveraging variable pay for high performers and niche skills.
This comes as Indian IT service companies grapple with margin pressure and rising employee costs amid a growing need for high-cost digital skills and pressure to hire local talent in the US and other countries.
Companies are cascading variable pay to more levels in middle management and building in new ways of calculating them such as project-based assessment, experts said.
“What is happening at IT service companies at the moment is rewards differentiation for value drivers,” said Mansee Singhal, a senior principal at Mercer, referring to niche roles and skills such as data scientists, full stack developers, tech architects, story tellers and skills like artificial intelligence and machine learning. “Companies are managing restricted budgets to rewarding differential contribution, significantly differently and limited to smaller numbers.”
The average salary increase in IT service companies thriving on outsourced work – especially from the US market – was 4-6% in the past couple of years and is projected to be even lower in 2020, according to estimates by HR consulting firm Aon. This compares with projections of 9.9% for the hi-tech and IT sector and 9.8% for the ITES sector.
“Multiple factors are responsible for this – right from the growing need for new digital skills to the US putting pressure on the IT work that is being outsourced to other countries through imposing visa restrictions,” said Anandorup Ghose, partner and head of emerging markets at Aon.
Infosys declined to respond to an emailed query from ET.
“The IT service industry has had to adjust their business models to remain relevant in the current times. Bill rates, realisation and hence margins are under a squeeze,” said Arvind Usretay, director-–rewards at Willis Towers Watson, India. “Top performers already at high market pay grade levels are being handed lump sums as against base pay increases.”
Traditionally, cash payouts and one-time bonuses have not been very popular in the IT service sector, where a large portion of employees is technical and still used to fixed salaries.
However, with increasing pressure on the salary kitty, companies are being prompted to make more intelligent and wide use of the variable component, which may command a 10-15% share in middle management pay and 30-35% in senior management pay.
“Instead of giving out an average increment, companies are making informed differentiations on factors of merit and niche/upcoming skills,” said Alpana Dutta, partner, people advisory services, at EY India. “Given the complexity of balancing the existing business with new and upcoming skill areas linked to strategic priorities, there is increased deliberation on where to put the money and which kind of talent to put your money on.”
Cash payouts and one-time bonuses are becoming popular in IT service companies as this will not add to recurring costs, added Ratna Gupta, senior director at ABC Consultants.