By Navamya Ganesh Acharya, Sethuraman NR and Nivedita Bhattacharjee
BENGALURU (Reuters) – India’s top IT services firms are freezing or cutting staff bonuses, worried that tightening budgets at recession-braced U.S. and European clients will hit their own profits after a pandemic boom.
Infosys Ltd, India’s second-largest IT company, and smaller rival Wipro recently told their employees that they had cut the variable pay portion of workers’ compensation benefits, according to respective internal emails sent by management to staff at the two companies and saw Reuters.
Some Indian companies include variable pay as part of the total compensation package of employees and link it to the performance of both the employee and the company.
“There is a growing belief in business that we need to prepare for a (global) recession,” said Peter Bendor-Samuel, chief executive of US-based consultancy Everest Group, which provides research on IT companies worldwide.
“The first thing they’re doing is trying to eliminate discretionary spending. It’s early, but it’s starting to happen.”
Major Indian IT companies have paid top dollar to attract skilled workers over the past two years as demand has grown for services such as cloud-computing, digital payments infrastructure, cyber security and cryptocurrency trading. This has sparked a talent scramble with company reports showing the net number of people leaving large IT firms this year is 60%-80% higher than two years ago.
Higher pay packages are among the factors putting pressure on margins.
Infosys’ April-June operating margin fell 3.6 percentage points from a year earlier to 20.1% and Wipro’s IT services margin fell to 15% from 18.8%.
Last week Infosys told employees in an email seen by Reuters that the company was making “structured efforts” to improve performance as it cut variable pay.
Wipro in mid-August withheld variable pay for middle and senior employees and fixed payments at 70 percent of full variable pay for junior employees, blaming disappointing margins in the June quarter, according to an email to staff seen by Reuters .
Indian IT companies have also cut back on hiring new graduates as they see less need to replace people who leave, analysts said, further saving on operating costs.
Infosys declined to comment for this story. He directed Reuters to its latest earnings call, where CEO Salil Parekh said the company saw a slight “slowdown in decision-making” from customers.
Wipro recently launched quarterly promotions to try to retain staff.
The company said it completed its first round of quarterly promotions as of July 1, and wage increases for employees will take effect from September 1.
“We have no further comment on the amount of variable pay,” the company added in an emailed response to Reuters queries.
India’s No. 1 IT services provider Tata Consultancy Services made no cuts to variable pay, which was delivered without delay, a company spokesman said.
“We expect margin erosion to continue over the medium term…due to the reversal of employee-employer bargaining power, excessive graduate absorption, limited price increases, travel cost performance and high on-site inflation,” the analysts said in a note. of JP Morgan. this week.
India’s Nifty IT index has fallen by a quarter this year, its first decline in six years and underperforming the Nifty 50, which is up 1.5 percent.
“The implication … would be that they are doing this (cutting variable pay) to protect or reduce pressure on margins, but at the same time it shows that growth prospects are softening,” said Ruchi Mukhija, Vice President, Technology and Internet. Elara Capital.
(Reporting by Nivedita Bhattacharjee, Navamya Ganesh Acharya and Nallur Sethuraman in Bengaluru; Editing by Sayantani Ghosh and Susan Fenton)