India’s second largest IT services company Infosys has slashed average variable pay of employees to nearly 70 per cent for the June quarter, amid margin squeeze and higher employee costs, according to sources.
Recently, Wipro withdrew variable pay of employees mainly due to pressure on margins, inefficiencies in its talent supply chain and investments in technology. Big rival Tata Consultancy Services has reportedly delayed payment of quarterly variable compensation for some employees by a month.
According to sources, Infosys has reduced variable payouts to around 70 per cent for the June quarter or the first quarter of FY23 and employees have been informed about the same.
E-mails sent to Infosys on the issue did not elicit any response.
Last month, Infosys reported net profit amid lower costs, compared to a 3.2 per cent increase over projected costs in the June quarter. However, the company raised its full-year revenue growth outlook to 14-16 per cent, citing strong demand and a strong deal pipeline.
The company maintained margin guidance at 21-23 per cent but made it clear that with an escalating cost environment, this margin would be at the lower end of the outlook. Infosys’ operating margin stood at around 20 per cent in Q1 FY23.
Higher employee benefits expense, sub-contracting costs and travel expenses had driven up the overall cost for the Bengaluru-headquartered firm in the June quarter.
As such, high level of jobs due to high employee cost is denting the profitability of the Indian IT industry.
Infosys Chief Financial Officer, Nilanjan Roy, had said in the first quarter earnings statement that the company is driving strong growth momentum with strategic investments in talent through recruitment and competitive compensation revision.
“This will impact margins in the immediate term, but it is expected that this will reduce the level of layoffs and give us a good position for growth in future,” Roy had said.
The company had said that it would continue to optimize various cost levers to enhance efficiency in operations. The increase in compensation, however, impacted margins by 160 basis points and reduced utilization with new freshers coming in.
The company stressed that these were more in the nature of an “investment” given the strong demand landscape, and assured that it would look at cost optimization levers such as better utilization, and more automation.
Wipro has also stopped variable pay of employees due to pressure on margins. The company’s C-suite level managers will not get any share of the variable pay, while employee grades from freshers to team leaders will get 70 per cent of the total variable pay, sources familiar with the matter had said earlier.
This story has been published without modification in text from a wire agency feed.
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