Companies
IT firms to cut payouts as outlook weakens
Summary
- The IT industry is likely to offer muted variable payouts of 60-70% of the promised amount for the June quarter
MUMBAI : The information technology (IT) industry is likely to offer muted variable payouts of 60-70% of the promised amount for the June quarter, with top performers getting as much as 80%, as IT companies focus on saving costs amid a weakening revenue outlook and reduced employee turnover.
“Considering the current sentiment, there is a possibility that employers take a prudent approach, and payouts will be made only to those teams whose businesses have performed well," said R. Ramesh, director of digital business solutions, professional staffing and international engagement at staffing firm Adecco Staffing.
Unlike IT product companies, which are seeing active hiring, IT services companies have curtailed recruitment efforts. The drop in attrition rates amid sluggish market conditions is another reason companies can skip workers’ demands. Analysts expect IT services firms’ June quarter earnings to be weak.
According to a 3 July JP Morgan note to clients, the June quarter earnings for the Indian IT sector are expected to be the weakest in a decade, excluding the impact of the covid-19 pandemic. This decline can be attributed to clients’ reduction in discretionary technology spending amid an uncertain macroeconomic environment.
TeamLease Digital’s chief executive officer (CEO) Sunil Chemmankotil estimates the IT firms will keep their variable pay between 60-80% in the three months to 30 June. In the preceding quarter, Tata Consultancy Services Ltd offered full variable pay, while Wipro Ltd and Infosys Ltd offered 80.25% and 60%, respectively.
A spokesperson for Wipro said promotions and variable pay to employees at Wipro will continue as planned, while spokespeople for Infosys and TCS did not respond to the queries. HCL Technologies Ltd, TCS, and Wipro are expected to announce their quarterly results this week, and Infosys will declare its earnings on 20 July.
Unlike the recent quarters, IT firms are expected to be less generous in the June quarter, with variable pay likely to be offered to a smaller group of employees. “There will be a 10-15% dip in the payouts this quarter for the junior, 15-20% for the middle management, and upwards of 20% for the senior," said Ritu Sethi, partner, technology practice at recruitment firm ABC Consultants.
Brokerage IDBI Capital expects Tier-1 companies to experience either a flat margin or a decline of up to 118 basis points (bps). This decline can be attributed primarily to wage hikes and lower revenue growth. “Q1 is the strongest quarter for IT companies. However, current macro conditions are expected to impact the revenue growth of IT companies. BFSI (banking, financial services, and insurance), retail, communication, and hi-tech are witnessing higher stress," IDBI Capital said in a 30 June note.
However, some human resource industry experts said the impact may not be significant, as companies may want to retain talent. “About 75-85% will get their variable pay, but a lot will depend on the account on their performance, that of their teams and company performance," said Vijay Sivaram, the CEO of IT staffing at Quess Corp. He said there has been a slight uptick in business, and certain deals have been closed in the last three months, which can lead to better-than-expected payouts.
devina.sengupta@livemint.com
