Tata Consultancy Services (TCS) has increased quarterly variable payouts for a section of its mid-and senior-level employees in the fourth quarter of FY26, signalling cautious optimism around business momentum after several subdued quarters for the Indian IT sector.
People familiar with the matter said employees in the mid-to-senior grades received 60-80% of their variable pay for the January-March quarter, an improvement from the 20-50% payouts seen across several senior bands in earlier quarters. For nearly two years, TCS maintained these payout levels as it recalibrated its payout criteria and policies.
Weaponizing Compensation
Quarterly variable pay (QVP) at TCS is now linked not only to employee performance but also to office attendance. Employees with less than 60% office attendance are ineligible for variable payouts, while only those with attendance above 85% and above qualify for the full payout.
At a time of lower payouts, the IT industry was grappling with weak discretionary technology spending and slower project ramp-ups. TCS did not respond to queries on the matter till press time.
Even during the period of lower payouts, junior employees and delivery-intensive roles continued to receive significantly higher variable compensation, with many getting close to full payouts, sources said.
The move comes as TCS and other large IT services companies navigate a gradual recovery in client spending after nearly two years of muted demand, particularly for discretionary projects in North America and Europe.
Premium Allocations
According to sources, payout levels were not uniform across teams, with employees working on strategic accounts, AI-led programmes, cloud transformation and high-utilisation projects believed to have received relatively higher payouts.
TCS has increasingly repositioned its workforce towards artificial intelligence, cloud, cybersecurity and consulting-led services as enterprise clients shift spending priorities towards automation and productivity-led investments.
In FY26, it undertook a companywide reorganisation exercise to adapt to the emerging demand for AI-led solutions. It also announced plans to expand into AI infrastructure and data centre opportunities.
TCS also was the first among its peers to give out salary hikes effective April 1.
Over the past several quarters, many IT firms either delayed salary hikes, reduced variable payouts or tightened promotion cycles as revenue growth slowed and utilisation levels came under pressure.
TCS management had earlier indicated improving deal momentum and healthy order bookings, while also cautioning that demand recovery remains gradual and uneven across verticals. Chief executive K Krithivasan had earlier told FE that AI-led deals are coming at a premium to traditional service line deals, adding that ultimately, AI-led deals will overcompensate for the reduction in revenues from non-AI deals.