The big guns of India’s software industry have closed ranks and tried to assuage employee fears that salaries are about to be clipped. This after Tata Consultancy Services Ltd (TCS), India’s biggest software services company, decided to cut variable pay because it could not meet the internal target for economic value added (EVA), a measure of financial efficiency to which its variable pay was pegged.
Infosys Technologies Ltd chief financial officer V. Balakrishnan told Mint that his company does not see “any softening of wages”. In that sense, the TCS salary cut is a one-off event and may not be repeated next quarter. But the fact that TCS could actually tell its 100,000 employees—one-fifth of the total workforce in the Indian software services industry—that they’ll have to settle for slightly smaller-than-expected cheques in the bank tells us a lot about the state of the labour market in this sector.
Software companies have had to battle rising wages and high attrition through most of the past decade, a natural consequence of their mind-boggling growth. There was ample anecdotal evidence of employees switching jobs with abandon as companies jostled to get good engineers to man the workstations. Salaries grew at an average of 15-20% a year. This is unsustainable and job-hopping, too, is likely get more infrequent in the coming quarters.
So, is the balance shifting in favour of employers?
While, on the one hand, the top software firms continue to offer jobs by the tens of thousands to fresh engineering graduates, they also have to take cognizance of the fact that their main market (the US) is battling a severe economic slowdown, the dollar is dropping in value and profit margins are shrinking. On the other hand, slipping stock prices could mean that many employees could find that their stock options are no longer as remunerative as before.
India is still a fast growing economy and the demand for skilled labour will continue to be strong. Labour shortages in some high-growth sectors such as retail?and construction could get worse. But the pace of growth of salaries in the software services industry is likely to slow—in step with the overall slowdown in its revenues and profits.
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