NEW DELHI: India’s second largest IT services company Infosys reduced the average variable payout of employees to about 70% for the June quarter amid margin squeezing and high employee costs, according to sources. Recently, Wipro withheld employee variable pay mainly due to pressure on margins, inefficiency in the talent chain and investments in technology. Biggest rival Tata Consultancy Sevices reportedly delayed the payment of quarterly variable pay for some employees by one month.
According to sources, Infosys has reduced the variable payout for the June quarter or Q1 FY23 to around 70% and employees have been notified.
An email sent to Infosys about the matter did not elicit a response.
Last month, Infosys posted a lower-than-expected 3.2% increase in net profit for the June quarter due to higher costs. However, the company increased its full-year revenue growth prospects to 14-16% citing strong demand and a solid deal pipeline.
The company maintained the margin lead at 21-23%, but made it clear that as the cost environment increases, it will be at the lower end of the margin outlook. Infosys operating margins were around 20% in the first quarter of fiscal 23.
Higher employee benefit expenses, subcontracting costs and travel expenses increased overall costs for the Bengaluru-based company in the June quarter.
As a result, the high level of attrition leading to higher employee costs is hurting the profitability of the Indian IT sector.
Infosys Chief Financial Officer Nilanjan Roy said in the first quarter earnings statement that the company is fueling strong growth momentum with strategic investments in talent through competitive hiring and compensation reviews.
“While this will affect margins in the short term, it is expected to reduce friction levels and position us well for future growth,” said Roy.
The company said it continues to optimize various cost levers to increase efficiency in operations.
Compensation increases, however, impacted margins by 160 basis points and usage decreased due to the impact of the arrival of new freshmen.
The company said these were more in the “investment” nature given the robust demand scenario and assured that it will look for cost optimization levers such as better utilization and greater automation.
Wipro also withheld employee variable pay due to pressure on margins. Managers at the company’s C-suite level will not receive any portion of the variable pay, while employee grades among freshmen and team leaders will receive 70% of the total variable pay, knowledgeable sources previously said.
FacebookTwitterInstagramKOO APPYOUTUBE
