Infosys Cuts Employee Incentives By 70% As Earning Margins Reduce; Employee Union Strongly Objects

Considering the impact on margins, the Indian IT major, Infosys has reduced the variable payout for employees for the first quarter of FY23, reportedly.

Reduced Variable Pay Incentive

At an organization level, the average variable payout is 70 percent, according to the email sent to employees. 

Interestingly, this move of Infosys to reduce payout comes days after its rivals such as TCS and Wipro deferred or reduced variable payouts for the April-June quarter in a bid to defend margins. 

It appears that IT firms margins have come under pressure due to rising employee costs.

This includes salary hikes and paying a premium for hiring talent, even as they grapple with increased attrition.

Reacting on this development, Harpreet Singh Saluja, President, Nascent Information Technology Employees Senate NITES said, “NITES strongly condemns the unethical deductions being implemented by Infosys. Under the pretext of uncertain economic environment the company has withheld the variable pay component of the employees. The Net profit for last quarter is at Rs 5,360 crore, or Rs 12.78 a share, compared with Rs 5,195 crore, or Rs 12.24 per share, in the same period a year back. Revenue or turnover rose 23.6 per cent to Rs 34,470 crore in April-June – the first quarter of the current fiscal year. After posting such financial results still the company is deducting 30% of variable pay which is clear exploitation of IT employees.”

Fueling Growth Momentum With Investments

Further, clarifying, Infosys said that the company is fueling growth momentum with investments in talent through hiring and compensation revisions in the email to its employees. 

Adding, “While these investments have impacted margins in the immediate term, we are making structured efforts to improve our performance in the quarters to come,”. 

Payouts for the VPI will be made along with August’s salary, as scheduled by the IT firm earlier with the average payout being 70 percent.

For an individual employee, the final variable payout will depend on their unit or department’s guidelines, also it varies for different pay grades and departments.

So far, there is no statement released by Infosys on this subject.

But CEO Salary Has Increased, And It Was Justified

Amidst the row over reduced variable pay for employees, some sections of the IT industry are pointing out that despite low margins on earnings, and increased expenses, the salary of Infosys CEO has increased by 43%.

Harpreet Singh Saluja said, “Also in May 2022 the company justified a 43% increase in salary to CEO Salil Parekh saying the firm has achieved industry-leading growth in recent years. Such astronomical figures of salary is being drawn by CEO while employees are drawing such less amount. Infosys’ Founder Narayana Murthy once said that giving huge salaries to just the CEOs does not solve any purpose and engineers should be paid more. He had suggested to reduce the median salary difference between CEOs and staffers. But it seems that Infosys is going in exactly opposite direction.”

Peers Lookout On VPI

During the announcement of its earnings for Q1, Infosys said that it gave competitive salary increases for a majority of employees based on performance in April.

Followed by the salary hikes primarily for senior employees were being done from July 1.

For Q1FY23, Infosys’s operating margin contracted to 20.1 percent as opposed to 23.7 percent in Q1FY22 and 21.5 percent in Q4FY22.

The IT firm has reported a headcount of 3,35,186 as of June 30.

Its rival, Wipro had announced that the company will not be paying out the variable pay to employees in B and C and above for the quarter.

Similarly, the junior-level employees will receive 70 percent of their variable pay. 

In the case of TCS, it had delayed variable pay by a month for specific grades—C3A, C3B, C4, and equivalent—of employees.

All together, Infosys and its peers had witnessed an elevated attrition.

The Bangalore headquartered firm’s Q1FY23 attrition stood at 28.4 percent On an LTM basis.

This was up from 27.7 percent in Q4FY22 and on a year-on-year basis, it was up from 13.9 percent in Q1FY22.

Infosys claimed that attrition has been declining on a quarterly basis, although the impact of attrition, wage hikes, as well as the cost of new hires is very dynamic.