At Flipkart, merit-based payouts push out salary hikes in increment season

The Walmart-backed e-commerce platform, which let go of about 5% of its staff in January, has split its annual salary increases into two quick tranches for its junior and middle management employees, as per an internal communication that Mint has reviewed. These increases will not reflect in an employee’s salary structure, and will effectively be merit-based payouts.

These merit-based payouts, however, will be handed out in April and October, unlike increments that would be staggered across an entire year.

Senior employees will receive neither annual increments nor merit-based payouts. But unlike last year, senior employees such as those at the levels of vice president and senior vice president will also receive bonuses, the company has said.

Employees being promoted, across levels, will enjoy all three—pay increases reflecting in their overall salary structure, merit-based payouts, as well as bonuses.

These changes come on the back of Flipkart’s attempts to contain attrition rates. This, however, is not specific to Flipkart as the broader startup ecosystem has struggled through similar patterns, undergoing a vigorous talent hunt, especially at senior levels. 

As for employees, those who were paid handsome salaries during the pandemic rush for hiring at tech-led companies are now struggling to sustain their pay cheques after funding dried up and startups became focused on conducting their operations more efficiently.

Mint could not immediately quantify Flipkart’s attrition rate.

Kalyan Krishnamurthy, Flipkart’s chief executive officer, issued a communication to the company’s more than 20,000 employees on Thursday detailing the new compensation structure. Flipkart recently has had a spate of layoffs, and these measures, according to company executives, are expected to help it retain employees across levels.

“Instead of usual compensation increases, we will be delivering merit-linked payouts to all eligible employees, in Grade 12 and below. These merit list payouts shall be made as two lump sum payments in April and October this year, and equivalent, in value to the merit increase that would have typically been paid through the year," Krishnamurthy said in his letter addressed to Flipkart’s employees.

Grade 12 and below refers to Flipkart’s junior and middle management employees. For employees in other grades, the company said it has enabled wider spread of ESOP (employee stock ownership plan) allocation to “drive wealth creation". The company has a total of 16 grades. 

A spokesperson for Flipkart confirmed the development, which Mint reported first. “We are providing compensation increases to employees getting promoted, merit-linked payments, and bonus payouts. Additionally, our stock option allocation exercise will continue as is for those who are eligible," the spokesperson said.

In FY23, Flipkart spent ₹4,482 crore on employee benefit expenses, up from ₹3,735 crore a year earlier. Meanwhile, its total expenses grew 26% on-year to ₹19,043 crore.

Some mid-level employees at Flipkart are not enthused by the changes in the compensation structure. One Flipkart executive, declining to be identified, said employees were dissatisfied with their pay structures and intense work schedules, which have pushed them to scout for better opportunities. 

Flipkart’s decision to modify its increment policy so the base pay grades of employees remain unchanged will make it more challenging to land a better pay package elsewhere, this person added.

Flipkart employees at the junior and middle management levels were given 6-10% increments last year, according to recruiters. 

In January, Flipkart laid off about 5% of its total workforce, or nearly 1,000 employees, as a part of its annual performance review cycle, according to several media reports. While the company carries out these routine job cuts every year, the layoffs were also aimed at reducing costs, according to the reports.

Flipkart has been trying to improve its financial health and generate better unit economics as it looks to list on the public markets next year. The company had initially planned an initial public offering of its shares in 2023.

Walmart, which acquired a 77% stake in Flipkart for about $16 billion nearly 6 years ago, has been increasing its presence in India. The American retail giant aims to import goods worth $10 billion annually from India by 2027.

Last year, Walmart infused $600 million into Flipkart, with the fresh capital expected to bring in new investors, as per a Reuters report. Walmart's current stake in the company remains undisclosed after it bought the remaining shares held by hedge fund Tiger Global and venture capital firm Accel for $1.4 billion last year.