Why IT majors Infosys, Wipro, and TCS are scaling back on variable payout

Software behemoth Infosys has reportedly reduced its average variable payout for the June quarter to 70 per cent. Infosys is not the only IT company to cut back on variable compensation of employees. Software majors like Tata Consultancy Services (TCS) and Wipro also recently announced that they have deferred, postponed, or reduced the variable payout to employees for the first quarter of the financial year 2023. 

What is causing this crunch at India’s IT majors?

Variable payout, better understood as performance pay, refers to the compensation given to employees based on their contribution beyond their normal job requirements. It is mainly based on two factors, employee performance as well as the company’s performance. 

Most of these IT behemoths are cutting back on variable payouts because of the squeeze in margins for the June quarter. 

Amid increasing costs, Infosys reported a lower-than-expected rise in net profit, 3.2 per cent, in the first quarter of the financial year 2023. A stark increase in employee benefit expenses, sub-contracting costs, and travel expenses elevated the overall costs for Infosys in this quarter. 

Although the company maintained the margin guidance at 21-23 per cent, it still clarified that the increase in costs will lead the company to be at the lower end of the margin outlook. The IT major’s operating margins were at 20 per cent for the June quarter.

Moreover, Wipro also scaled back on variable pays due to pressure on margins.  The IT giant pointed out that the inefficiency in its talent supply chain and increased investment in technology had increased the costs of the company. The company announced that it would not be handing variable payouts to employees in grade C and above for the June quarter. Junior-level employees will receive only 70 per cent of their variable pay.

India’s largest IT services company,  TCS also delayed variable payout by a month for grades C3A, C3B, C4, and others.  Performance bonus for certain employees has also been delayed at TCS. The company said that the massive size of the workforce is posing a problem when it comes to paying out variable compensation.

 

Also Read: 'It's not cheating': IT employees disagree with Wipro's Rishad Premji on moonlighting - BusinessToday

Also Read: TCS delays select employees' performance bonus, variable pay for Q1 FY23 - BusinessToday