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Why freshers are abandoning Infosys, Wipro and TCS
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Good Morning Mathew,
So Infosys has been doing something unusual.
A Pune-based labour union has raised a complaint against Infosys with the central labour ministry and sought removal of a non-compete agreement clause in offer letters given by the country’s second largest software firm.
The company’s employee agreement states that an employee shall not accept for six months an employment offer from “named competitors” such as TCS, Wipro and HCL among others if the new job involves working with a customer with whom the employee has previously worked with in the preceding 12 months during their stint at Infosys, Nascent Information Technology Employees Senate said in its complaint.
It also says for six months they should not accept employment offers from a customer directly with whom they have worked within the preceding 12 months during their stint at Infosys.
Labour union seeks removal of ‘non-compete’ clause in Infosys offer letters, The Economic Times
By the way, this non-compete agreement clause was added by Infosys in all their contracts recently, so there's a good reason why people are pissed.
If you look at the previous quarter, IT companies in India are facing two things at the same time:
Revenues and profits are fantastic. Infosys’ net profit is up 12% year-on-year. HCL Technologies’ net profit was up by 23.9% (adjusted for the impact of a deferred tax credit and one-time milestone bonus in the previous year). TCS was also up by 7.4%, and Wipro by 3.9%.
Employee attrition is at an all-time high. Infosys lost 27% of its employees last quarter. TCS is also above 25%. HCL Tech is up to nearly 22%. Wipro is at nearly 24%.
India’s biggest IT service companies are making more money than they have in the past. Great revenues. Even better earnings.
But for some strange reason, they lose nearly a quarter of their employees every single quarter. If you work at Infosys, and took a year-long sabbatical, and came back the next year, there’s a good chance you wouldn’t recognise anybody on your team… or in your company.
Of course, I know that’s an overstatement, because the attrition includes people who would have joined and left while you were away. But my point is that people are leaving IT companies in droves. At this point, I’m pretty sure people are probably attaching their resignations along with a signed copy of their offer letter. HR is probably desperately hiring extra people just to keep up… until the people they hired to process the exits put in their papers the next week. There’s probably a long queue at the desks where people have to hand in their laptops and lanyards. People deleting goodbye emails they receive everyday just to free up inbox space. Entire food courts reserved for mass farewell parties.
Again, this is all probably an overstatement, but my point is that a lot of people are leaving these companies.
And quite frankly, all of them had it coming for a long time.
Let’s dive in.
A different form of bonded labour
If you want to understand the main reason behind the exodus, the statements of the leaders of these companies provide a clue.
“We are in an environment where demand is chasing supply. It’s a good problem to have. The way to fulfill the demand is through freshers. Once the freshers feed in into the system, they take 3-4 months to come into production. That’s when you’ll see the overall benefit of hiring. Over a period of 6 months, with more freshers coming in, you will see moderation of this from a more macro perspective.”
Nilanjan Roy, Chief Financial Officer at Infosys
It seems like all leaders in IT service companies constantly speak the same jargon-laced buzzwordy statements. It sounds like English, but it really isn’t. So I’ll translate. What Mr. Roy is saying is—Previously a lot of people wanted to work for us. Suddenly they don’t. We think this will get fixed. But it will take time.
Paradoxically, that statement describing the solution is a perfect illustration of the problem. Infosys says that the solution to losing employees is to hire more freshers. But the problem is how they describe them. Look at the words they use to describe their employees. Feed into the system. Production.
For the past couple of decades, IT companies in India have been viewing their people as automatons. They see them as warm bodies, as cogs in a massive machine to be taken, fitted, and replaced. Over and over again. Hundreds walk in every day. Hundreds leave. Life goes on. It’s like an assembly line.
And nobody has it worse than the people who join at the entry level of this machine.
Freshers.
Let’s start with their salaries.
Back in 2010, the average salary for a fresher at a top-tier IT company was around Rs 3-3.5 lakh (~US$4,300-5,000 at that time).
In 2021, the average salary for a fresher at a top-tier IT company is around… Rs. 3-3.5 lakh (~US$4,000-4,500).
Seriously. A lot has been written about fresher salaries at IT companies having remained the same for decades. Minor revisions are conducted occasionally, and increases are usually in the single digits.
But why do IT companies like Infosys, TCS, and Wipro believe they can get away without almost no increased salaries for freshers?
Well, to use Mr. Roy’s phrase, it’s because of demand and supply.
Industry executives say there is a good reason for fresher salaries in the IT services industry barely rising over a decade: there is more supply than demand.
Close to 10-15 lakh engineers graduate every year in India, and a significant portion are not employable. As a Noida-based IT executive pointed out, “Why would we pay more money when there is ample supply and we are investing in training them? Salary is a function of demand and supply.”
Consequently, companies have continued to hire freshers for more or less the same package for over 10 years. To put this in perspective, the CEO salaries for the top four IT companies have seen over 500 percent increase in compensation during the same period.
IT fresher salaries stagnates even as war for tech talent intensifies in India, Moneycontrol
Keeping salaries constant for nearly a decade is one thing.
But then, IT companies got greedy.
[Examples of Youtube videos on employee bonds in the Indian IT sector]
If you are an IT company and you don’t want freshers who are getting paid next to nothing to leave, what do you do? Well, you make them pay you a penalty if they leave your company.
Take TCS, for example, which mandates all freshers sign a contract that if they leave the company within two years (now recently reduced to one year), they’d have to pay the company Rs 50,000 (US$650)—nearly a fifth of their annual salary. On top of this, TCS has a notice period of three months. So, if you want to leave the company, you’ll have to pay them AND wait for three months. This applies to all scenarios, even if you get admission into a university and want to quit to pursue higher education.
If you go online, you’ll find hundreds of posts across forums from employees asking what they need to do to avoid paying the bond. Some suggest that the best option is to just ghost the employer, but in that case, the company will refuse to give you any documentation stating that you worked there. Others claim that there’s an employee blacklist that’s shared across IT companies, so you become unemployable in the entire sector.
You may argue that this is how the liberal free market works. If supply is greater than demand, well, tough luck, that’s how a fair price is decided. And if this is clearly a problem, well then one IT company needs to increase their salaries, and they’d get all the freshers.
Free market. Open competition.
Well, I’ll let Mohandas Pai, former CFO of Infosys, explain how IT companies took care of the free market.
There is a cartel...there has been a cartel, there is no doubt. They (big IT companies) talk to each other, sometimes tell each other not to increase, that's been there for a long time.
I know that people (of big IT companies) used to get together and tell each other not to raise (entry-level) salary. If one took into effect inflation, the remuneration of freshers in the IT industry has in fact come down by 50 per cent in the last seven years. That's why attrition in the first five years is very high.
They (big IT companies) can afford to pay better salary. They have to make sure they don't pay more at the top, and they pay more at the bottom. They have to learn to adjust.
To me, it's an ethical, fairness issue; they can afford to pay more. (Not raising an entry-level salary is) ethically and morally wrong.
Mohandas Pai, Former CFO at Infosys
Again, this is the former CFO of Infosys, not some random conspiracy theorist. There’s good reason to believe he knows what he’s talking about.
But the thing is, in other countries, when this happens, it’s taken pretty seriously. And usually, it never ends well for the companies. Take the example of Apple, Google, Intel, and Adobe, who had secret no-poaching agreements with each other over key employees. Evidence revealed that the agreement was masterminded by Steve Jobs, then CEO of Apple, which severely limited workers’ mobility and incomes. The whole thing ended in a settlement with the four companies settling a class-action lawsuit for half a billion dollars.
Meanwhile, back in India, you can tell that even companies aren’t taking this seriously, because there aren’t any consequences.
Remember Infosys?
Well, the Ministry of Labour and Employment summoned them yesterday to discuss the no-compete clauses they had recently placed in their contracts.
The Nutgraf is a paid weekly emailer that explains fundamental shifts in business, technology and finance that happened over the last seven days in India. In a way you’ll never forget.
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