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Business News/ Companies / News/  Is the windfall for tech employees over?
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Is the windfall for tech employees over?

Are the sunny days of multiple offers and big hikes over for employees as the tech sector faces a margin crunch? Mint explains:

A large portion—as high as 60-70%—of tech firms’ spends go towards wages. Photo: MintPremium
A large portion—as high as 60-70%—of tech firms’ spends go towards wages. Photo: Mint

Infosys is reportedly offering its employees 70% variable pay, citing margin pressures. Earlier, reports stated that Wipro had delayed payouts for certain employee categories. Are the sunny days of multiple offers over for employees as the tech sector faces a margin crunch? Mint explains.

Will less variable pay drive up attrition?

The tech workforce maybe disappointed but their exit routes are closed as companies across the industry face margin pressures. Employees have been getting higher-than usual hikes and promotions because of the hiring frenzy that followed a pandemic-induced lull. However, IT firms had warned of upcoming headwinds—high inflation and a looming recession in the US. The firms are taking a calculated risk, knowing that the middle and senior order will have fewer exit routes as sectors like startups and other internet companies are also going slow on recruitments because of a funding crunch.

How high are wage costs at IT companies?

A large portion—as high as 60-70%—of tech firms’ spends go towards wages, followed by infrastructure and travel expenses. This year, companies have rolled out hikes and promotions but variable pay, which is directly linked to the business every quarter, was impacted. Companies can calibrate that amount because holding back on hikes and promotions would lead to more exits while variable pay can see a turnaround if business improves over the next few quarters. Recruiters point out that tech firms are not denying the hikes but a delay or a 70% rollout is not a complete washout.

The squeeze
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The squeeze

What led to the increase in wage costs in tech sector?

IT hiring boomed in the last two years as businesses rushed to digitize their processes. Tech firms saw record attrition, and 60-70% salary hikes became normal. Companies were forced to roll out larger than usual hikes to retain staff, impacting margins. After years, they raised salaries of the thousands of graduates getting absorbed, adding to the costs.

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Why have work choices decreased?

The employees who could hop between startups, tech services and internet sectors are now left with fewer choices. The startup segment has been steadily laying off over the last three quarters as funding from global private equity and venture capital firms dry up. Earlier, a tech worker could select between a more typical IT firm versus a startup with more stocks and bonuses. For the specialist, the route to global tech firms like Microsoft, Apple, Google have become tougher as they too are on a cautious hiring mode.

Are tech salaries likely to flatten next?

The hiring frenzy may ebb over the next couple of quarters, but those in specialist roles will always be in demand and can command high salaries. IT companies, meanwhile, have saved on infrastructure costs as work from home continues. Travel has not reached pre-pandemic levels among office goers yet. So, companies may still have some headroom for pay hikes. However, freshers and those on the bench may have reasons to worry if large deals do not materialize over the next couple of quarters.

Elsewhere in Mint

In Opinion, Niranjan Rajadhyaksha tells why unpredictable inflation makes an ideal policy rate harder to set. Vivek Kaul argues building new homes can’t drive endless economic growth. Zubin Karkaria of VFS Global explains the pile-up of visa applications. Long Story tells how crypto industry is struggling to find a way out of the gloom.

 

 

 

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ABOUT THE AUTHOR
Devina Sengupta
Devina tracks and writes on workplaces, human resources and education for Mint. She also occaisionally writes an opinion column. She hosts a podcast on interesting HR trends in corporate India called The Working Life.
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Published: 23 Aug 2022, 11:06 PM IST
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