Reduced variable pay and increase in the number of fresh recruits to the total workforce are among the major factors that have led IT majors to hire more at lower pay scales. Although IT majors have reported a 15 % increase in the number of employees hired, the average growth rate of their wage cost has halved during the third quarter ending December 2007, compared with the same quarter last year (22% in Q3 of FY07 from 45% in Q3 of FY06), according to an Assocham Study.
Experts attribute this reversal of trend to increase in the hiring at the entry level vis-a-vis hiring at middle and senior management levels. ?The IT industry is still hiring aggressively but only at the entry level. By lowering the increments they are encouraging employees with 0-5 years of experience to move out, replacing them with freshers. They are not hiring seriously at senior levels, these positions are being filled up by promoting internal performers. Thus headcount goes up but bottomline is not affected,? explained Shiv Agrawal, CEO, ABC Placement.Vishal Chibber, HR head, Kelly Services agrees, ?This trend could be attributed to a larger ratio of fresh recruits off campus being hired in comparison to lateral hires.?
As demonstrated by Tata Consultancy Services? (TCS) decision to cut variable pay of over one lakh employees in January, reduction in variable component of the pay is seen to be another reason behind the lowered pay scales. ?As both total income and net profit have been affected by the slowdown, the variable pay, which forms part of the wage cost, would have also gone down. Performance and profit-linked incentive plans can be anything between 10-30% of the employee salary,? reasons Chibber.
Reduced bench strength (employees who are on the payroll of the company even when they are not working on a project) is another factor leading to the trend ?Productive efficiencies have gone up, bench strength which was upto 20% of total manpower strength is almost non-existent today,? added Chibber.
G S Hora, director, Synergy Consultants, said, ?In an industry that is highly intellect dependent, where the major cost is employee cost, if the growth in wage hikes does not cross growth in revenue increase, the situation is not at all bad.? Pointing towards the slowdown in US economy and the consequent pressure on margins and revenue growth (coupled with rupee appreciation), he believes that the industry has not fared badly. ?The pressure on growth of compensation is expected to remain during the first half of 2008 also and would ease only when there is a substantial change in US business outlook.? Hora predicts that the Indian IT industry has been making a conscious effort to shift focus to European markets to hasten growth.