Senior executives at IT major Tata Consultancy Services (TCS) suffered a cut in quarterly variable payouts by 30% for a second consecutive quarter in Q3FY25, sources close to the company said.
For the second quarter of the fiscal year too, the senior grade employees at India’s largest IT company saw 20%-30% cut in variable pay.
Some IT sector firms, including TCS, have now linked the variable pay for employees above a certain grade with the performance of their business unit, instead of a company-wide average percentage.
“We don’t comment on speculation,” TCS said in response to detailed email queries sent by FE.
Analysts and staffing experts said that lower than 100% variable pay can be expected for senior grade executives in the industry as the sector continues to battle headwinds in growth.
“One can expect the trend to continue for the next four to six quarter, unless there is a miraculous positive development which restores margins for IT companies. Senior levels executives, especially those who do not have billable hours (like people managers and team supervisors), may get only 70% of quarterly variable pay,” Gaurav Vasu, founder and chief executive officer, market intelligence firm for technology companies Unearthinsight, said.
Last year, TCS updated its HR policy to include office attendance and business unit performance (in case of seniors) as a criteria for variable pay eligibility.
For those at junior levels, the payouts have been by and large 100%, with a handful getting between 90%-95% basis office attendance and performance.
One of the reasons that junior employees are getting up to 100% variable pay could be an effort to discourage attrition. Utilisation levels are in the mid- to-high-80’s (as of Q2), and further attrition could lead to elevated cost of acquisition of new employees, which will add to margin pressure, analysts added.
IT companies have seen margins shrink over the past several quarters due to slowdown in discretionary spending. While Q2 saw some green-shoots of revival, Q3 was riddled with seasonality and furlough headwinds. The sector continues to face challenges in total contract value (TCV) conversion and sustaining growth in emerging markets as the core markets show slow recovery.
The weak business growth has resulted in not only reduction in quarterly variable pay for senior executives, but also delayed wage hikes in some companies. While TCS gave out wage hikes in Q1 for the current fiscal, companies like HCLTech, Infosys and LTIMindtree deferred the same to Q3 or later.