Last week, when the employees of TCS opened their appraisal letters, it was with little anticipation. For most of the mid-level employees, the hike was flat—at 6%. At a time when the standard raise has been 3-6%, no thanks to the falling revenue growth, not many complained. But a few discerning employees noticed that something was a bit off. The compensation structure had changed. As they went through their letters, making calculations in their minds, they realised the company had increased their quarterly variable allowance—the part of the salary that depends on performance and profitability of the business units. On the other hand, the company has been slashing the variable pay since last year due to subdued performance.
“Earlier, we used to get it whether or not the results were good. They are not giving that to us anymore,” says a TCS employee on the condition of anonymity. “Whatever hike they gave us earlier, it is adjusted against this variable component. So most of us would be getting the same salary as last year, or maybe even less.”
Although it may not amount to much in an individual salary, since the quarterly variable allowance is usually 2-7% of the total compensation, it may save a substantial sum for IT firms, for which employee cost makes up more than 70% of the total expense and over 50% of the revenues.
Analysts see this as a measure to cut costs to maintain operational efficiency. “It is one of the levers that companies use so that they can stick to the operating margins,” says an analyst, declining to be named. The Mumbai-based brokerage firm he works at doesn’t allow media interactions.
In fact, India’s top three IT services providers are treading a fine line, where they are micromanaging things to stay profitable. Since they have no control over the macroeconomic circumstances—the H1B visa curbs stemming from Donald Trump’s protectionist policies, Britain’s exit from the European Union or the currency volatility—which have made clients clutch their IT budgets ever so tightly. This comes at a time when technology is changing faster than the services companies can implement for their clients. The traditional services firms are forced to invest in reinventing themselves. The reinvention spans the whole gamut—from technical IT and back-office support providers to top-level strategic consulting or client-facing work.