Bangalore: As fears grow of a cut in technology spending by customers in the US—the largest market for technology services—Indian technology service vendors have increased their focus on employee performance, weeding out what they call poor performers to rein in costs and improve productivity.
The Indian technology sector is abuzz with news relating to performance-related paycuts and layoffs with the country’s largest software services firm Tata Consultancy Services Ltd (TCS) taking the lead in trimming the variable component of employee salary for the December quarter.
TCS also said some 500 employees had quit in the first three quarters of the current fiscal on performance-related issues, while at IBM Corp.’s Bangalore offices, insiders say some 200 executives have been asked to leave.
Pressure to perform: Infosys has no plans to lay off staff, says chief financial officer V. Balakrishnan. (Photo: Madhu Kapparath/ Mint)
“I feel there will be an increase in performance discrimination as companies will try to keep salary costs lower,” said Gautam Sinha, chief executive officer of TVA Infotech, a Bangalore-based recruitment consultancy firm.
For information technology services firms, salaries are the biggest expenditure, accounting for half of their total costs. As wage inflation and a stronger local currency continue to exert pressure on profit margins, companies will look at innovative ways to keep costs under control, Sinha said.
In the past, wages have risen between 12% and 20% annually for most software service firms. The rupee strengthened about 14% against the US dollar, the currency in which most software and back-office services from India are billed.
Discussions among employees at some firms revolve around the forthcoming appraisals and the hike in salaries they are going to get. “I am aware that I will not get the same kind of salary hike that I got last year,” a mid-level employee at Sasken Communication Technologies Ltd, a software services firm focussed on telecom clients, said, asking to remain anonymous. This employee got 15% hike last year, but is not expecting more than 10% this year.
Performance discrimination will help companies to not only reward top performers, it will also curb attrition at that level, Sinha said. One fallout of that move will be pressure on below-average performers, who have been well compensated because of the unbridled growth in the industry.
The amount of pressure will, depend on the business pressures at different companies, said V. Balakrishnan, chief financial officer at Infosys Technologies Ltd, India’s No. 2 software services firm. “Companies which face pressure on margins could intensify the checks,” he said. Infosys does not have any plans of layoffs.
At Satyam Computer Services Ltd, Sucharita Palepu, head of what the company calls its talent management group, believes differentiation is a part of the annual appraisal and non-performers need to be weeded out. However, the company does not intend to intensify the differentiation process in the context of a slowdown impacting business as it would continue to need people and talent.
“Our existing policy would continue to remain the same,” Sucharita said. A 25-year-old employee at a TCS office in Bangalore said it was surprising “the company (was talking) about people leaving now”. Assessments were held two months ago.
According to this executive, who did not wish to be identified, there were concerns among his colleagues that this was an indication of things to come if there is a slowdown in technology spending.
Research firms such as International Data Corp. have forecast that growth in spending on information technology and related services will be flat at 5-6% in 2008.