Wednesday, October 31, 2007

Party over, IT sector in for big pay cut

It may be the end of good times for software professionals. Fat salary hikes in the IT industry may soon be a thing of the past. That is because IT companies have realised they need to cut costs in their biggest money drainer - the salaries. The IT industry's largest employer, TCS, says that wage inflation has peaked.

“What we are experiencing this year is a stability in wages. Last year, we had a 12 per cent –15 per cent increase in wages and my own expectation is that this year the wages will increase 10 per cent –12 per cent,” said S Padmanabhan, ED and Head-HR, TCS.
That is a view seconded by Wipro, which sees wage inflation moderating at 12 per cent-13 per cent.

Infosys, however, sees wage inflation at 12 per cent –15 per cent. Salary increments offered in the first quarter this year, reflected in the margins of TCS and Satyam, in the form of an impact on their second quarter margins by 117 basis points and 450 basis points respectively.
Infosys, which offered salary hikes in April last year, saw margins in its first quarter impacted by 250 basis points. One look at the wage hikes, in the past five years, clearly show wage inflation moderating if not declining.

Industry experts say IT margins are impacted primarily by wage inflation and appreciation of the rupee. While the sting of the rupee is being countered by forex hedging, salary hikes are also being tempered.

However, some job skills may continue to carry a premium.
“In certain niche market or skill set, you can have a demand, which is far more than the supply and there is a premium. In industry parlance, we call it hot skills, and those hot skills demand a premium,” said Aquil Busrai, ED-HR, IBM India.

Instead of offering a salary hike, some IT companies are sending employees to the US or Europe earlier than usual, so that their onsite salaries make up for the lower salary hikes.

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