Why single-digit pay raises won't cut it with India's unhappy IT workers

The hopes that double-digit raises would boost the morale of India's three million IT workers are dashed, following a recent announcement by Infosys about pay increases in 2014.

Image: iStock/indianeye

Infosys, India's second largest IT services firm, announced on its intranet recently that the bulk of its 158,000-strong workforce would receive a 5-7% pay raise this year. Many other top Indian IT companies are at least a couple of months away from announcing their pay increases, but Infosys reflects compensation trends in the IT industry fairly accurately. 

From the outside, single-digit pay hikes in the world's topmost IT services outsourcing destination convey a rosy picture. After all, such increases are unheard of amongst industry peers in the US or Europe. In India, though, the numbers do not add up to good news for the industry's three million-plus workers.

Historically, the industry has had a record of being a generous paymaster. Double-digit pay hikes were a regular feature for many years. The economic downturn, which started in 2008, reversed the trend, however. The turbulence led to a period of tepid growth and, since then, employees have been stuck with annual pay hikes of around 4-8%.

This year, as demand in key markets like the US and Europe show signs of revving up, IT company employees in India have been looking forward to a better deal. The much-anticipated doubt-digit raises were expected to boost workers' morale, which has been at a low.

The fact that low salary hikes come at a time when the industry trade body NASSCOM is forecasting a much better growth for Indian IT in 2014-2015 is adding to dissatisfaction in the workforce. The $100 billion IT industry is on an upward growth trajectory and hopes to garner more deals this year in the multi-billion dollar market. NASSCOM projects that the industry will close to 15% rates as against a 13% growth rate in the previous year. Seen in this context, the projected salary hikes are half the growth rate projections.

Anandorup Ghose

Companies are justifying their conservative approach. "The industry works on cost margins and over the last few years has woken up to the fact that salary increases are steadily depleting the cost arbitrage," said Anandorup Ghose, performance and rewards head at the Indian unit of HR solutions firm, Aon Hewitt. Ghose said he is not surprised by Infosys' hike levels and expects the rest of the industry to follow suit.

As another year of low salary increases looms, workers are discontented. The 5-7% hikes at Infosys, for instance, do not amount to much when viewed in the context of the country's soaring inflation levels. After hovering at highs for months, inflation numbers have eased to 4.7% in February 2014. Workers just have to adjust to higher costs of living.

As if the salary hikes are not enough bad news, companies are freezing hiring, replacing employees at lower salaries, and moving compensation from fixed pay to variable pay.

"Employees are unhappy, but where can they go?" asked Kris Lakshmikanth, CEO of Head Hunters India, a Bangalore-based placement firm.

At the other end, entry-level salaries have been static for many years. Industry-wide entry-level compensation for engineering graduates has not gone up in the past five to six years. Entry-level salaries for engineers have barely risen from the 250,000 rupees-350,000 rupees ($4,200 - $5,900) annual levels of a few years ago. 

Workers in multinational IT firms are even worse off than their counterparts in Indian IT.  Many employees at firms such as IBM and Hewlett-Packard have received no pay hikes since last year. 

There is one silver lining for outperformers in Indian companies: They are being rewarded with bigger hikes. Fixed pay may not rise, but bonus payouts will be good when companies see growth momentum, Ghose said. Those with sought-after skills in verticals like analytics, cloud, and social media stand to gain in the form of one-and-a-half to two times the pay hike of average performers.