Red-hot tech salaries began to show signs of cooling in Q2

According to September quarter earnings data, wage costs as a share of revenue declined for two of the six top IT firms—Tata Consultancy Services Ltd and HCL Technologies Ltd at 56.1% and 54.6%, respectively—from the preceding three months. For Infosys Ltd, wage costs were little changed at 53.2%.

“The offers and premium salaries for new hires have gone down, along with retention bonuses and mid-year salary corrections, in the IT services sector. The shopping for jobs has reduced, and this trend will continue for the next few quarters because the sector is connected to global factors,” said Roopank Chaudhary, a partner for human capital solutions at Aon in India.

In a study on salary increments released in September, Aon projected the IT sector to roll out 11.3% salary hikes next year from 12% in 2022. The IT-enabled services (ITes) industry should give a 10.1% hike in 2023, compared with 10.7% in 2022, indicating that wage costs will moderate after almost a year.

However, two other tech firms analyzed by Mint continued to see an uptick in wage costs. L&T Infotech recorded a cost of 63.8% of revenue, followed by Wipro (60.9%), which reported the sharpest increase from the June quarter (58.6%).

As a result, for the five companies analyzed, the average wage costs rose marginally to 57.7% of revenue in the September quarter from 57.6% in the preceding three months.

But as attrition comes under control for several tech firms, wage costs are expected to go down on the back of multiple factors. “The market also played a role. The supply-demand gap of talent is plateauing. People carrying six offers are not happening, demanding an outrageous premium on their compensation is not happening,” Saurabh Govil, chief human resources officer at Wipro, said in an interview last week.

TCS, in its results, said its attrition would taper as “compensation expectations of experienced professionals moderate”.

Rituparna Chakraborty, co-founder and executive director of TeamLease Services, said the battle is tough, and the drop “won’t happen overnight”.

“The firms have the option of increasing top line or reducing salaries or bringing down the rate of headcount addition. They still need talent, and attrition will hover around 20%, so focusing on topline is the only way for them,” Chakraborty said.

The analysis covered five of India’s top IT companies—TCS, Infosys, HCL Technologies, Wipro, and L&T Infotech—which have released their earnings for the quarter ended 30 September. Tech Mahindra, the fifth most highly valued IT services firm, was not part of the analysis as its September quarter earnings are yet to be released.

Overall employee costs, which include benefits, provident fund, insurance costs along with wages, remain high as companies focus on lateral hires who are more expensive.

“It is important to note the real movement of employee costs in comparison to the headcount growth registered over the period,” said Kamal Karanth, co-founder of Xpheno, which specializes in tech hiring. “Expansion hiring was not in play, resulting in the lowest net headcount growth in eight quarters. With a net headcount growth of under 2.7%, the top five bellwethers have registered a 6.4% quarter-on-quarter employee cost increase,” Karanth said.

Data showed that except for TCS, growth in employee benefit costs outpaced revenue growth in all other companies from a year earlier, and most severely for Wipro. TCS’s September quarter revenue grew 18% from a year earlier, while wage costs rose 17.7%. Infosys’s revenue grew by 23.4%, and wage costs grew by 23.5%. HCL’s revenue rose by 19.5%, while wage costs rose by 22.3%. Wipro’s revenue increased by 14.6%, while wage costs rose by 23.4%. L&T Infotech’s revenue grew by 28.4% and employee costs by 30.2%.