The Tata Group company has delayed the variable payout for C3A, C3B, C4, and equivalent grades by a month. These are employees at the assistant consultant, associate consultant, and consultant levels.to The money that was due to be paid in July will be paid by August-end now, according to an internal email accessed by ET.
“The performance bonus for Q1 FY23 is yet to be finalized for C3A, C3B, C4, and equivalent grades. This will be paid along with August 2022 payroll to eligible associates,” the email sent at the end of July said, without specifying the reason for the delay or the quantum of the bonus which will be given out.
“All our compensation and bonus cycles are as per plan,” TCS said in a statement in response to ET’s queries.
An impacted employee of the company who spoke to ET on the condition of anonymity said that the quarterly performance bonus is given in the payroll that follows the end of the quarter. This time, the company had communicated a “delay”, the employee said
Sources with the company said this was an “administrative issue” that will impact a small percentage of employees. “The delay is not due to cost concerns. The performance evaluation process has not been completed due to the massive size of the workforce being covered. A minuscule share of the employee base is yet to receive their bonuses which, as communicated, will be rolled out by the next salary cycle,” the person said, adding that this should not be linked to actions taken by any other IT company.
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The development comes days after , another IT major,
had paused variable pay for mid and senior-level employees. As reported by ET and others, employees belonging to C bands and above (managers to C-suite level) will not receive any variable payouts while associates in A & B Bands (freshers to team leader levels) will receive 70% of target variable pay for the April-June quarter subject to billability threshold.
An internal email by Wipro reviewed by ET said the company is seeing continued pressure on operating margins. “Our Q1margins were lower at 15% due to inefficiency in our talent supply chain, project margins and our investments in talent, technology and solutions during the quarter… Given our underperformance on margins this quarter, our variable pay (including sales incentives) takes a hit,” it said.
TCS had a total headcount of over 6,06,300 employees at the end of June. The experience range of employees in the impacted bands ranges from 7 to 15 years while having a total pay package of Rs 10 to 30 lakh per annum. And, the annual variable component typically accounts for 10% of the pay package. Roughly 10-15% of the company’s employee base would fall under this category, said sources.
It is learned that TCS has given variable pay to freshers and other junior-level associates for the June quarter.
IT companies have been facing the double whammy of falling operating margins and rising attrition over the last few quarters. In the June quarter, the operating margin of TCS stood at 23.1%, dipping 240 basis points from a year ago and down 190 basis points from last quarter. Top executives also termed the first quarter of fiscal 2023 as “challenging” from the point of view of rising costs due, in large part, to rising attrition which touched 19.7% compared with 17.4% in the previous quarter.
The current cautious approach across the sector is mainly due to the present global macroeconomic outlook, said Varun Sachdeva, APAC Recruitment & Business Leader, NLB Services. The largest market for the Indian IT industry – the US is feared to be entering a recession which has led to several analysts reducing the outlook for technology spending in the current year.
Earlier this month, rating firm
projected moderation in the revenue growth and operating profit margins for its sample set of 13 major listed Indian IT companies. Year-on-year growth is expected to moderate to 12-14% in the ongoing fiscal due to macroeconomic conditions and inflationary headwinds across key markets, impacting investments in technology by clients, it said.
“We see this as a conservative approach which also happened during the Covid period. It is also an opportunity for IT firms to reassess their talent systems and reconfigure priorities,” added Sachdeva.
Cost considerations
Immediately after the Covid-19 outbreak in 2020, Indian IT majors, including TCS,
, and Wipro, decided to freeze salary hikes as a cautionary move. However, an improved demand environment had then prompted many of them to take a relook at the decision with TCS itself handing out two salary hikes within a gap of 6 months. However, analysts suggest that companies are now turning to cost control measures in order to curtail expenses that have already ballooned due to high talent costs during the pandemic.
“We are quite focused on staying very competitive in the market, making sure that we chase the demand… Opportunity to optimize (margins) will come when some of these other parameters (pricing, employee costs, and utilization) start to stabilize,” TCS chief executive Rajesh Gopinathan had said in an earnings call after its April-June results.
