Infosys cuts average variable payout to 70% for Q1 on margin pressure

Infosys reported its operating margin in Q1FY23 at 20.1% down from 21-23%. The overall expenses had surged more than 29 per cent due to higher retention costs and cross-currency headwinds.

India’s second-largest information technology (IT) firm Infosys has decided to reduce the average variable payout of employees to 70 per cent due to falling operating margins in the first quarter (Q1) of 2022-23 (FY23), said people in the know.

“The margin impact in the current quarter has reflected on the performance bonus for this cycle,” the company told its employees over email.

“While 70 per cent is the correct figure, an important point is we have been told that the company will not defer any variable payment. It is being paid according to schedule,” said a person.

Infosys reported its operating margin in Q1FY23 at 20.1 per cent, down from 21-23 per cent. The overall expenses had surged more than 29 per cent due to higher retention costs and cross-currency headwinds.

An email sent to Infosys remained unanswered until the time of going to press.

High attrition rates, leading to increased employee costs, have impacted the operating margins of Indian IT companies during the last quarter. Infosys had reported attrition levels at 28.4 per cent, while the software services major had increased its employee headcount by 21,000 employees.

Variable pay is the incentive companies pay to employees based on performance. Companies may choose a variety of ways to give variable pay, and not all forms are monetary.

Before Infosys, other IT majors such as Tata Consultancy Services and Wipro had deferred or reduced variable payouts for the April-June quarter after the margins came under pressure.

At its Q1FY23 earnings call, Infosys’ Chief Financial Officer Nilanjan Roy said the company was not planning to cut employee costs. “We did two wage hikes in the calendar year 2021. This year, we rolled out another in April. Within a year and a half, we have done three substantial hikes and in September last year, we also did a skill-based increase. To capitalise on this demand, we have to pay for premium skills.”

“We do not want to leave a five-year demand on the table because of short-term cost pressures. We can optimise these over this year and the future as well,” he added.

IT employees’ union Nascent Information Technology Employees Senate (NITES) has condemned the payout cut.

Harpreet Singh Saluja, president, NITES, said, “Under the pretext of an uncertain economic environment, the company has illegally withheld the variable pay component of employees.”

He added, “The net profit for the last quarter was at Rs 5,360 crore, or Rs 12.78 per share, compared with Rs 5,195 crore, or Rs 12.24 per share, in the same period a year ago. Revenue or turnover rose 23.6 per cent to Rs 34,470 crore in April-June — the first quarter of the current financial year (FY23). After posting such financial results, the company is deducting 30 per cent of variable pay — a clear exploitation of IT employees.”