Falling margins, high attrition, moonlighting causing trouble for IT sector

Wipro, one of the four IT majors in India, announced that it will withhold the variable pay of mid, and senior-level employees for the June qtr (Q1FY23) due to poor financial health

High attrition, moonlighting, and variable pay have put Indian IT companies in a tough spot. Along with high employee costs, and low margins, the IT sector has been facing high distress, according to a report by Economic Times (ET). 

Wipro, one of the four IT majors in India, announced that it will withhold the variable pay of mid, and senior-level employees for the first quarter (Q1FY23) due to poor financial health. The employees in the C bands and above at the IT giant will not receive any variable or performance-linked incentive, ET reported. 

"Our Q1 margins were lower at 15% due to inefficiency in our talent supply chain, project margins, and our investments in talent, technology, and solutions during the quarter. Given our underperformance on margins this quarter, our variable pay (including sales incentives) takes a hit," Wipro's mail to its employees stated, as reported by ET.

Also Read: Slowdown in hyper-scalers could impact the revenue of the IT companies

However, the employees in bands A and B will receive 70 per cent of the variable pay for the quarter. Bands A and B have freshers to team leader-level employees. People in mid to senior-level job roles, having an experience of 7 to 15 years are expected to be affected the most by the crisis. 

Other IT companies like Tata Consultancy Services (TCS) and Infosys have also followed suit. TCS had earlier delayed the variable pay for employees in the C3A, C3B, and C4 level jobs. 

However, it later announced a 100 per cent variable pay to 600,000 employees. 

Infosys has announced that it will pay 70 per cent of the variable pay on average to its employees for Q1FY23.

Business Standard had earlier reported that a report by PwC shows that the attrition rates in India are expected to remain high as the millennials and Gen Z are now more inclined towards the work conditions, faster promotions and better pay. 

Also Read: Attrition to remain high as millennials demand better pay, promotion: PwC

One of the most prominent reasons for high attrition in the IT industry, according to ET, is moonlighting. It is a situation when a person takes a job while they are already employed somewhere else. 

Wipro chairman Rishad Premji had tweeted that moonlighting is "cheating- plain and simple".

IT companies recorded high attrition rates in Q1FY23. Infosys saw the highest attrition at 28.4 per cent, followed by HCL at 23.8 per cent, and Wipro at 23.3 per cent. 

Some companies like Swiggy have, however, allowed their full-time employees to take on external projects for money, but it will be subjected to internal approval.