Leading Indian IT companies are poised to experience a significant reduction in salary increments, potentially halving compared to the previous year. This decline is a response to the challenging global economic conditions prevailing in the fiscal year 2023. Historically, the IT sector had been known for offering annual salary increases ranging from 12% to 18%.
However, the expectation is that these increments will now fall within the range of 6% to 10%. This situation, as outlined by Kamal Karanath, co-founder of Bengaluru-based staffing firm Xpheno, may even seem optimistic if the existing challenges and the downward trend in global tech spending persist.
Salary Trends and Challenges in the IT Industry
On the bright side, high-performing employees, constituting around 20%, can still anticipate substantial salary hikes, as companies emphasize the retention of their top talent. Conversely, those with weaker performance records are likely to receive more modest increases.
Looking at the bigger picture, the overall salary increase outlook within the IT industry appears less promising. TCS’s annual report, released in June, revealed that the average salary hike for employees at the largest IT firm, TCS, had dwindled to single digits, ranging from 6% to 9% in the fiscal year 2023, a significant drop from the 10.5% increase in the preceding year. Salary increments for managerial roles also experienced a noteworthy reduction, plummeting to 13.6% in the last fiscal year from 27.4% in the fiscal year 2022.
Over the past three years, major IT service companies collectively increased their compensation costs by 64%, while their combined revenues saw a more modest growth of just over 57%. This suggests a considerable cost input compared to the generated revenue, prompting the IT industry to undergo an adjustment phase in salary trends, signaling the conclusion of a prosperous era, at least until the end of the current year. This transition comes at a time when the industry faces one of its weakest quarters in terms of growth.
Challenges and Transformations in the IT Industry: A 2023 Perspective
Vishwanath PS, MD and CEO of the Global recruitment firm in India, observed that the IT sector is no longer an isolated driver of salary increments but is now grappling with challenges similar to those faced by other industries. He predicts a reduction in salary hikes within the IT sector, dropping from approximately 11-12% to 10.8%. However, he remains optimistic that the IT sector will regain its strength within specific verticals by April of the next year, achieving an average increase of 40-45%, taking the broader tech sector into account.
In the meantime, the compensation structure for entry-level employees or freshers has experienced sluggish growth, remaining at around 4 lakh Rupees. A decrease in talent competition, coupled with a slowdown in hiring, is squeezing margins for most tech companies.
In response to these challenges, several leading Indian software companies have opted to delay or cancel salary increments for the current fiscal year ending in March 2024. For example, Accenture informed its best employees in India and Sri Lanka that they would not receive any salary increases this month. HCL Tech has excluded middle and senior-level employees from the current increment cycle, and Infosys, the country’s second-largest IT firm, is initiating its annual function cycle with pending hikes from the previous performance cycle.
Personal expenses account for 50-60% of total expenses in the IT sector, making cost optimization a priority for companies like TCS, Infosys, and HCL Tech. These firms are reducing their workforce by up to 50,000 employees and focusing on internal talent deployment to enhance employee utilization and operating margins in the face of fluctuating and uncertain demand. The future of the IT industry is now facing significant challenges.
