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Infosys does away with variable pay for entry-level employees

LiveMint logoLiveMint 15-05-2014 Arundhati Ramanathan

Mumbai: India’s second largest software services exporter Infosys Ltd may have allowed non-performing senior executives to exit but it has decided to motivate entry-level employees with the offer of a fixed pay—regardless of how well or badly they perform—hoping to stem rising attrition levels.

The move is seen as a bid to lift employee morale and keep them from leaving at a time when the company is searching for a new chief executive amid lower profit and revenue that in turn have resulted in poor wage hikes.

From 1 April, entry-level employees at Infosys, or those with zero to three years’ experience, are being given their performance bonus as part of their total salary. Prior to this, they were given a variable performance bonus that amounted to 5% of their gross salary.

“The decision to drop variable pay from the salary structure was based on the feedback received from employees. The main reason was to ensure a more steady and predictable income stream at lower levels,” said human resources head Srikantan Moorthy on Tuesday.

Last year, the Bangalore-based firm cut the quantum of variable pay across all levels, reducing it from 13% to 5% on 1 July 2013 for entry-level staff. In June, it cut the quantum of variable pay of senior executives from 50% to 35%.

Entry-level employees account for 23% of Infosys’ workforce, or 37,000 employees out of a total of 160,000. It is at this level that attrition is typically the highest, say analysts. The former bellwether firm has seen its attrition level climb every quarter over the last two years to hit 18.7% at the end of 31 March, up from 14.7% two years ago.

Lacklustre revenue growth, lower pay hikes as compared with faster growing peers Tata Consultancy Services Ltd (TCS) and Cognizant Technology Solutions Corp., and a major management overhaul, have contributed to mounting attrition rates, say analysts.

“For large organizations the administration process of effectively differentiating performance and managing the variable pay process (particularly at junior management levels) is a huge process,” said Anandorup Ghose, rewards consulting practice leader at Aon Hewitt India, a human resources consultancy.

“However, if the entire process does not move the needle on driving motivational or organizational performance, it is only rational for organizations to reduce or remove incentives,” he added.

Sandeep Muthangi, analyst with brokerage India Infoline Ltd (IIFL), said the move is “positive”.

However, this exercise is not going to reduce costs for the company by any means. Addressing entry-level workers who earn between `3.5-`5 lakh annually can increase costs by at least `65 crore as the company will have to pay the 5% bonus irrespective of the performance of both employees and the company.

Infosys did not disclose the cost impact of this exercise.

The average variable pay component at the junior management level among information technology (IT) service companies is 10-12% of the salary, according to Ghose.

Besides increasing the fixed pay component, Infosys also restored regular April hikes, as it announced an average 6-7% pay rise last month for India-based staff, and 1-2% for onsite (those working at the client’s site) staff. This figure, though, is below the average 10% increase in wages for India-based staff announced by TCS, with more given to high-performers. Third-ranked IT services firm Wipro Ltd plans to offer a 6-8% hike to its India-based staff from June.

These measures at Infosys, though, will take time to yield results. “It will take another four to six quarters for these measures to have an impact and reduce attrition,” said Moorthy.

And not all staff are necessarily elated with the move. has decided to motivate entry-level staff by doing away with variable pay.

“We were expecting double-digit hikes and were disappointed with the 6-7% hike. They are trying to compensate that by giving us more in hand, but it is not adequate. It is just giving us about `2,000 more in hand a month,” said an employee with two-and-a-half years experience. He did not want to be named.

Analyst Muthangi believes it is only when the company shows growth that it can really plug attrition.

“Management overhaul, wages are not the primary reasons for attrition. Historically, growth and attrition have had a strong relationship. Companies that are on the growth curve have the least amount of attrition,” said Muthangi.

There have been about 10 top-level exits from Infosys ever since founder N.R. Narayana Murthy returned as chairman last June to lead a revival. Those who have left include Ashok Vemuri, V. Balakrishnan and Stephen Pratt—the highest-paid employee in fiscal 2014—along with B.G. Srinivas, thought to be the frontrunner for the CEO’s post at Infosys.

For fiscal 2015, the firm forecast an increase of 7-9% in revenue, ahead of the Street’s expectations of 6-8%, but much lower than the average 13-15% industry growth rate for the year forecast by software lobby Nasscom.

Infosys’ growth woes were felt between fiscals 2011 and 2013, as it lost its pole position to faster-growing rivals TCS and Cognizant, and missed its own estimates several times.

In those two years, its revenue growth rate fell from 26% in 2010-12 to a little over 5% in 2012-13, even as its costs linked to doing business at client locations went up from 36% to 46% of total costs.

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