Behind the rising wage bills of tech giants

Companies are introducing pay hikes and promotions and coming up with new benefits to stem the exodus, but efforts over the past three quarters have met with little success.

For companies, this concern coincides with rising margin pressure and fewer large deals as their largest markets, the US and Europe, could be headed for a recession as central banks aggressively raise interest rates to curb rapid inflation. increase.

Four out of five companies reported an increase in salary costs as part of revenue, as they struggled to retain employees with promotions and frequent pay increases, a Mint analysis showed.

“Top service companies need to invest in key sectors, especially high-performing employees to attract and retain talent and deliver projects. Gone are the days when the top ‘brands’ alone, be it TCS or Infosys was good enough for retention,” said Prashanto K Roy, a technology policy advisor.

Wage costs as a share of revenue for the quarter ended June 30 rose to 55.2% from 54.3% in the previous three months.

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While Infosys and Tech Mahindra saw the biggest jumps (1.6 percentage points), TCS was behind with a growth of 1.5 percentage points (up from 56% to 57.5%). Only HCL Technologies saw a marginal decline (from 55.8% to 55.3%).

Wipro reported the largest wage cost burden at 58.6% as a share of revenue, followed by TCS at 57.5%.

The rising wage cost comes at a time when the technical services sector has made every effort to reduce the manpower churn. For the past four quarters, there has been a hiring frenzy across all sectors as corporates continue to lay off employees of tech firms in an attempt to digitize their services.

However, as global tech majors such as Apple, Google and Microsoft slow down the pace of hiring, there have been fears that a reduction in deal size could impact tech services as well.

“At this point in time, the demand has eased a bit, but is still very healthy. AR Ramesh, Director, Digital Business Solutions, Professional Staffing and International Engagement, Edeco India, said, “Due to offshoring, I expect the demand situation to remain healthy in the near future.” “While employee costs have increased significantly, this is expected to stabilize soon.”

An analysis of Mint’s quarterly data showed that growth in employee benefit costs has outpaced revenue growth for all companies except Infosys.

TCS’ June quarter revenue grew 16% over a year ago, slower than an 18.2 per cent increase in wage costs. For Infosys, India’s second-largest software services company, revenue growth of 23.6 per cent was outweighed by a 20.4 per cent increase in wage costs. Rival HCL’s revenue grew 16.9%, while salary costs rose 21.2%. Wipro’s salary cost increased by 22.8%, while revenue grew by 17.9%. Salary cost and revenue for the June quarter for Tech Mahindra grew by 26.9% and 24.6%, respectively.

Tech firms are using no-pouch agreements and many promotions to retain talent.

“We cannot grow too much as it affects our profitability and now the focus is on retaining core talent,” said a senior executive of a tech firm.

Attrition was 19.7% for TCS, 28.4% for Infosys, 23.8% for HCL, 23.3% for Wipro and 22% for Tech Mahindra in the June quarter. Only Wipro and Tech Mahindra saw a marginal decline in workforce as compared to the previous quarter.

Overall spending for tech companies rose more than 20% from the year-ago period for all five companies, even as revenue growth remained below that mark in most cases. This affected profitability.

On both an annual and sequential basis, each of the five companies saw operating margins shrink. Tech Mahindra saw its margins decrease by 240 basis points sequentially and 360 basis points from a year ago, the highest among companies. One basis point is 0.01%.

Analysts at ICICI Securities said Infosys’ margins are likely to be further impacted by rising travel costs, wage hikes for senior employees and supply-side cost pressures.

For Wipro, the brokerage anticipates cost pressure arising from the quarterly promotional cycle beginning July 1, wage hike from September 1, and increase in travel and discretionary costs.

Manjul Paul contributed data analysis.

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