Large IT companies trim variable component of employee salaries

Large IT companies have started cutting the variable component of employees' variable pay, a pointer to the uncertain economic outlook they see ahead.

In a January report, brokerage firm Nomura said, "Our channel checks at tier-1 IT companies suggest marginal variable salary cuts compared to previous quarters have already started in view of the uncertainty in demand and recent performance."

The report added that variable compensation amounted to 4-6 per cent of the revenues of tier-1 IT companies (Infosys, Wipro and TCS), and 20-30 per cent of their offshore salary costs. The offshore salary ranges between 18 per cent and 27 per cent of overall revenues.

According to an HSBC report in September, the process of cutting back on variable pay started in the June quarter. A Times of India report citing a source at Wipro said the cuts would come though the company had not made a move in the direction.

Technology majors like Oracle, Accenture and Red Hat have reported falling decelerating demand for packaged software in their reports. Analysts say this would impact demand on the discretionary portfolio of Indian IT companies. According to research firm Gartner, IT spending growth forecast has also been cut to 3.7 per cent in 2012 over the earlier projected 4.5 per cent due mainly over the economic woes in Europe.

Variable pay is linked mostly to the company, unit and personal performance and over the last couple of years it had become a norm for IT companies to have 10-15 per cent as variable component of salary for junior to mid-management level employees and 20-35 per cent for senior level employees. A higher variable pay component is used both as a means to attract talent during the good times as also a lever to improve margins during difficult economic conditions.