Indian IT firms unlikely to lay off employees amid coronavirus lockdown

With high employee utilisation level and low bench strength, Indian IT companies are in a better position to absorb the adverse impact on cost for now

Despite the grim business outlook owing to the global spread of coronavirus (Covid-19), Indian information technology (IT) services firms are unlikely to resort to any major staff retrenchment, given the sensitivity of the issue.

Though this approach is in line with big US firms such as Salesforce and Morgan Stanley, whose chief executive officers have taken the public stand of not laying off employees, Indian IT firms, however, are not expected to take such a pledge publicly. This is primarily because unlike many US firms, Indian IT firms never had any layoff policy owing to its political sensitivities though employee retrenchment due to “under performance” is common.

Globally, the chief executive officers of prominent companies such as Salesforce, Visa, Morgan Stanley, Citigroup, Bank of America, and FedEx have taken the pledge not to pursue any significant layoffs in 2020.

Even Cognizant, which has Indian roots with 65 per cent of its employees in India, has announced paying an additional 25 per cent of the basic pay to most of its staffers in India.

“Indian IT services firms are not likely to take any public stand on layoffs like many US firms. But firing staffers owing to business disruption and consequent demand slowdown is not likely to happen in big way,” said a source familiar with the thought process. “Increments, bonuses, and variable payouts are going to be on hold for the middle and senior managements.”
 

Many large corporations, including Bajaj Auto, the Vedanta group, and the Essar group have stated not to reduce their headcount.

As far as Indian IT services firms are concerned, 55-60 per cent of their operating expenses comprise wages. So, any decision not to reduce the staff base can adversely impact their cost structure.

However, some experts say given the high (employee) utilisation level and low bench (reserve employees who are not deployed in any projects) strength, companies are in a better position to absorb the adverse impact on cost.

The utilisation level of Infosys stood at close to 85 per cent (excluding trainees) at the end of the December quarter of 2019-20 (FY20), while it was close to 80 per cent for Wipro.

Market leader Tata Consultancy Services didn’t reveal its utilisation level for the third quarter of FY20. The Mumbai-headquartered firm, however, said it had increased its utilisation levels in the quarter, which complemented its operating margin.

Pay rise, increments and variable payout are expected to be on hold.

“The variable salary constitutes around 40 per cent of the pay of the senior management. Given the current situation, sales targets are unlikely to be met in the current financial year. So, payouts will definitely be lower,” said a human resources expert.

The IT services industry is staring at a demand slowdown as reports suggest deals worth $3-4 billion have been deferred in this month alone.