The Hindu Business Line : On a roll

Indian IT employees have long been associated with long working hours, stressful deadlines and high salaries. While it is normal to expect the first two aspects to continue, or even intensify, during a time of slowdown such as now, it is significant the industry hasn’t done too badly with salary increments!

From a bird’s eye view level, employee wage costs of the top three IT services companies have risen faster than revenues have. That is to be expected, given that the 2008 calendar was a year of bad economic news and it might have been too soon for them to rationalise employee costs and productivity improvements. (See table.)

Zoom in to the individual salary-level and you find that salary increment figures are just what the doctor ordered for a depressed soul! Information available from annual reports published by Indian IT vendors such as Infosys Technologies Ltd, Tata Consultancy Services, MindTree and Sonata Software reveals that many senior executives have received substantial hikes, while some have seen their salaries decline.

A random selection of data pertaining to 15 employees, at the level of vice-president and above (but below the top management), across organisations, reveals that hikes have been in the Rs 1 lakh-28 lakh range.

All eyes on variable component

Typically, all of last fiscal year’s increment have been from the variable component and were linked to performance. Though salaries have increased despite the gloomy economic environment, companies looking to reduce expenses have been careful not to increase the basic salary, which would result in a fixed liability.

Much of these variable-heavy hikes, (well, almost all of it) has to do with the global economic crisis that has almost halved the growth rate of the industry from its erstwhile 30 per cent. Faced with a shrinking topline and bottomline, companies gave performance-related hikes while keeping the base salary unchanged. Under normal circumstances, the base salary would have increased as well.

Therefore, if a vice-president in one of the largest IT vendors saw his gross salary increase by Rs 22 lakh in the fiscal ending March 2009, it is likely that his basic pay would have remained unchanged, or would have increased marginally, and he would have earned the increment by meeting his business targets.

“A large part of the increments in 2009 is due to the variable part of the salary,” says Pratik Kumar, Corporate Vice-President, Human Resource, Wipro Technologies. “The basic salary might not have increased significantly.” The employee would have achieved his numbers and got the hike, he adds.

One of the main advantages of this method is that it ensures better performance from employees. “A hike in basic salary means an increase in fixed costs for the company but it does not guarantee increase in performance levels,” says Taz Rajabali, Director India RPO, Kenexa, a provider of HR-related solutions.

Companies need talent and skill to navigate a depressed economy and hence would be rewarding top performers to hold on to them, says Rajabali. However, even the hike in the variable component would be less compared to other years when the economy is robust, he adds.

Senior salaries growing faster

Phaneesh Murthy, CEO, iGate Corporation, is not surprised at the overall hikes to senior employees in the industry. He says that employee profiles at the level of, say, independent business unit heads, are becoming more global. They tend to be rewarded as per global salary standards. “So, you find that salaries at those levels are growing faster than at junior levels.” But, he cautions, “Figures available in annual reports now are increments given at the beginning of the 2009 fiscal.” Since many companies, if not all, give increments in the April-June quarter, he argues, “these figures reflect the times before the financial sector crisis hit a peak.”

Industry critics counter that by highlighting the fact that the sub-prime crisis is more than two years old now. Since the IT industry has been anticipating trouble in the global economy, it should have reined in wage costs, in keeping with its conservative image.

Rishi Das, Director, CareerNet Consulting, says some of the companies announce hikes during April or May. The job market in India was still very robust during the April-May period in 2008, and therefore companies gave increments, he adds. Also, the companies had not imagined that the economic crisis would be as bad as it is now.

SMEs follow suit

In Bangalore-based Sonata Software, most of the increments given during fiscal 2009 are related to variable pay incentives and target bonus schemes, says B. Ramaswamy, president and managing director of the company. “There are different slabs such as over-achievement and under-achievement and the hike depends on the performance,” he says.

Generally, there is some increase in the basic salary on account of compensation revision, and for each level there is a certain amount of hike. In the last year, the bulk was on account of variable pay, he adds.

Interestingly, not all have got hefty increments. Since increments have been related to performance, not all have benefited. A vice-president of a mid-sized IT services firm saw his gross remuneration decline by Rs 1 lakh, compared with the previous fiscal. The economic crisis has forced companies to focus on better performance management, which typically includes letting-go of the bottom 5 per cent and awarding the toppers.

“Employers are becoming more discerning about whom they want to reward and for what,” says Yeshasvini Ramaswamy, Managing Director, e2e People Practices, an HR advisory firm. “They are now more cautious about spending,” she adds.

She says even in this fiscal companies are talking about incentives as high as 40 per cent of the total salary. “So if people are saying there are no incentives this year, it is a wrong statement.”

The scare caused by the crisis is not there any more as companies have some clarity, she adds.

However, the basis of allocating bonuses has changed because of the environment, she says. Companies are looking at the value proposition more strongly. Employees who add to the revenue and profit of the company in a significant manner would be the ones to be regarded. In normal times, incentives would have been given to a much larger number of people.

Different functions — different rewards

Also, incentives have become far more function and role-specific. Citing an example, Yeshasvini Ramaswamy says in times such as these, the sales and marketing teams would probably be given more incentives than the people function or HR team. “Teams that have an impact on the revenue that can be measured are the ones that will receive higher incentives,” she says.

In the last fiscal, performance-linked incentives accounted for more than 70 per cent of the total hike, compared to 30-40 per cent in regular times, says Sunil Goel, Professional Leader, Global Hunt India. He agrees that because of the slowdown employees in teams that contribute to revenue directly have received more incentive than people in various support functions such as HR or finance and accounting.

With inputs from K Bharat Kumar

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