Fat paychecks, which used to be synonymous with the IT sector not long ago, may now be a relic of the past. Single-digit increments seem to be the new norm, which are expected to stay at least for another 3-4 years, moving forward. In consonance with the trend, the industry may hand out a hike of 6-8% in 2012-13.
In recent years, barring the 2008-09 crisis phase, the IT sector has been generous enough to award its employees with double-digit hikes in the range of 12-16%. “I feel there is a structural change in terms of salary increments. A hike of 8-10% is here to stay. The days of high double-digit hikes are over. The industry in India has grown and reached a certain level of maturity and hence, it cannot be expected to grow at the same level it grew during its infancy,” said Phaneesh Murthy, CEO, iGATE Patni, during the company’s quarterly results announcements last week.
In the IT industry, employee compensation makes up around 55-60% of total cost of operations, in which increments are often considered as the best tool to retain talent. The lingering European chaos means companies have an upper hand here as job hoppers are playing it safe by staying put. Ganesh Natarajan, CEO, Zensar Technologies, a Pune-based IT firm, said attrition for the past quarter has been the lowest for his company. “Even employees are no longer expecting huge salary hikes. The sign I am getting from them is that they would prefer to stick to one company provided it is doing fine,” he said. The industry will no longer see huge levels of increment, said Natarajan, adding that single-digit hike will be the new benchmark for the industry.
Some other IT executives who did not wish to be named said it’s the top three players which usually set the course for smaller companies. A few days ago, V Balakrishnan, CFO, Infosys, had indicated that pay increases will be in high single digits.
“Mid-cap companies will toe the line. Infosys, after all, is one of the leaders. Though large companies have somehow managed to sail through, small companies have benefited mainly because of the rupee depreciation. To maintain a healthy balance sheet, average cost per employee cannot go up the way it had in 2009-10. Things are a lot different now,” said an HR head of a mid-cap IT company.
Devendra Parulekar, partner, advisory and services, Ernst & Young, throws in a different perspective.
“With pricing pressure expected to continue, companies are making all possible efforts to maintain stable gross margins. Of late, the sector is undergoing structural changes on this front. The days of super fantastic growth for the industry cannot last forever, hence structural changes to maintain gross margins at current levels become imminent. Correction of the organisational pyramid in terms of leveraging lower level resources (read lower cost) and control on wage inflation are twin strategies adopted to maintain gross margins. Given this, I expect increments in single digits to continue in the near future,” said Parulekar.
Anandaorup Ghose, head, executive compensation and governance, Aon Hewitt, sounds slightly sceptical, who thinks companies cannot leverage much in terms of number of employees when it comes to reducing overall costs. His prescription is to bring down the overall compensation level. “IT companies have to remain competitive. Compensation is a critical cost and the CFO has little choice but to maintain a balance in terms of overall cost per employee,” he added.
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