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Working days shrink for benched code writers

IT companies are coming out with innovative HR schemes that are not only helping them cut staff cost and protect margins but also retain talent.

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Building pricing pressure from clients is forcing major informational technology (IT) companies to come out with innovative human resources schemes that are not only helping them cut staff cost and protect margins but also retain talent.    

In some cases, these measures are enabling tech companies to affect salary cuts of as high as 50-80%.

Wipro Technologies, India’s third-largest software company, for instance, has asked employees on the bench, who have not been billed for a long period, to work for only 10 days in a month at 50% of their current salaries.

The company has advised staff to use the rest of the month to upgrade their skills and pursue non-competing employment.

A company spokesperson said the scheme, at present, is restricted to only two verticals. She, however, could not specify in which verticals it has been introduced.

“Given the current global scenario, we could have taken the harsher step of laying off people but we are not doing that because we believe there is good talent on the bench, which we don’t want to let go.  Our schemes give employees the flexibility to use this time to upgrade their skills even as they are employed with us,” she said.

Besides Wipro, mid-cap software services firms Hexaware and Mastek have also slashed pay by reducing the number of working days in a month.

Another way in which the Azim Premji-owned Wipro is pruning staff cost is by allowing workers from Wipro Technologies, which oversees global business, to move to Wipro Infotech, the domestic arm for its IT services business.   

The company is also encouraging migration of workers from Wipro Technologies to its BPO operations to snip employee cost.

It has also introduced the sabbatical scheme, where it is sending employees on a 2-3 years leave. It will be paying 20% of an employee’s salary while he is on a sabbatical.
Bigger rival Infosys Technologies had also come out with similar scheme early this year.

A senior executive, who did not wish to be named, said the response to it has been very low because employees feared they would not be taken back if they went on a leave now.

“They (employees) are not even going on privileged leave because they are worried that they will lose their job,” he said.

And this fear among code writers is not unfounded. Over the last few quarters, they have already taken a hit on their variable salary. Variable salary is that component in a pay, which is based on the performance or achievement of business goals.

Tech firms have leveraged variable salaries to manage the pricing erosion in projects. IIFL analysts Aniruddha Dange and Sandeep Muthangi, in a report on Wednesday, estimated that 200-300 basis points of margin defence is likely due to reductions in variable salaries for software companies.

Bhavtosh Vajpayee and Nimish Joshi, analysts with CLSA Asia-Pacific Markets, in their report last month had said that Infosys would be able to manage margins in a 50-100bps range with a 4-5% price cut and Wipro was trying to restrict overall price drops in 2009 below 5%.

The duo said the Wipro would be able to maintain margins even in the “worst” case of demand. IIFL’s Dange and Muthangi also believe that “given the tight hiring policy in FY09, Wipro scores over its competitors Infosys and TCS.”

They, however, cautioned that its unprecedented moves to cut staff cost could dent staff’s loyalty, especially that of experienced programmers.

“All said and done, Wipro’s near-term margin defence would be higher than our earlier expectation. It should now be able to protect margins even against a 5% price drop,” state the IIFL analysts in the report.

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