Indian IT firms slash staff bonuses as US and European clients tighten budgets


Image used for illustrative purposes.

India’s major IT services companies are freezing or cutting staff bonuses amid concerns that tighter budgets for US and European clients bracing for a recession could hit their own profits hard after a pandemic-driven boom.

Infosys Ltd, India’s second-largest IT company, and its smaller rival Wipro recently told their employees that they had cut the variable part of employee pay, according to respective internal emails sent by management to company staff. two companies and seen by Reuters.

Some Indian companies include variable pay as part of the overall employee salary package and link it to the performance of the employee as well as that of the company.

“Businesses are increasingly convinced that we need to prepare for a (global) recession,” said Peter Bendor-Samuel, chief executive of US consultancy Everest Group, which provides research on IT companies around the world. .

“The first thing they do is try to eliminate discretionary spending. It’s early, but it’s starting to happen. »

India’s major IT firms have paid top dollar to attract skilled workers over the past two years as demand for services such as cloud computing, digital payments infrastructure, cybersecurity and cryptocurrency transactions increased. This has sparked a fight for talent with corporate reports showing the net number of people leaving large IT companies this year is 60-80% higher than two years ago.

Bigger salaries were among the factors that put 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.

In mid-August, Wipro withheld variable compensation for mid-level and senior employees and fixed payouts at 70% of total variable compensation for junior employees, blaming disappointing June quarter margins, according to an e- email sent to staff and seen by Reuters.

Indian IT companies have also reduced the hiring of new graduates as they believe there is less need to compensate for departures, analysts said, further reducing operating costs. Infosys declined to comment for this story. He directed Reuters to its latest earnings call, where CEO Salil Parekh said the company had seen a “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 beginning July 1 and employee pay increases would be effective September 1.

“We have no further comment on the amount of variable compensation,” the company added in an email response to queries from Reuters.

India’s leading IT services provider, Tata Consultancy Services, made no reduction in variable pay, which was paid without delay, a company spokesperson said.

“We expect margin erosion to persist over the medium term … due to reversal of employee-employer bargaining power, disappointing graduate adoption, limited price increases, return of displacement and high inflation on site,” JP Morgan analysts said in a note. this week.

India’s Nifty IT index has fallen by a quarter this year, its first decline in six years and underperforming the benchmark Nifty 50 index which is up 1.5%.

“The main thing … would be that they do this (reduce variable compensation) to protect or ease the pressure on margins, but it also simultaneously means that the growth outlook is softening,” said Ruchi Mukhija, vice president. , Technology and Internet, Elara Capital.

Separately, India’s tougher digital lending rules have disrupted foreign-backed fintech firms’ card services and jeopardized Amazon’s lending offerings, prompting the companies to stage a lobbying pushback, according to reports. industry sources and a document viewed by Reuters.

Citing concerns over high rates and unfair practices, the Reserve Bank of India (RBI) said this month that a borrower must deal directly with a bank, dealing a blow to prepaid card providers and payment websites. who act as intermediaries and instantly process deferred loan payments. .

India’s digital lending market has grown rapidly and facilitated $2.2 billion in digital lending in 2021-22, with startups attracting foreign backers and giving traditional banks a run for their money in the banking sector. credit.

The new rules have already hit prepaid card offers from Tiger Global, backed by Slice and Accel, startup Uni, which has partnered with banks and allowed users to split purchases into easy interest-free repayments, a feature not available with conventional credit cards.


Comments are closed.