Salary hikes of major IT companies take a back seat amid weak demand

Accenture for instance will not be providing salary hikes to its employees in India and Sri Lanka this year, except in critical skill areas and where it is legally mandated

Salary hikes at information technology (IT) companies have taken a back seat due to a slowdown in demand triggered by delayed decision-making by clients and reductions in discretionary spending. Some companies have deferred payments, while others have stalled them altogether.

Human resources (HR) experts said salary hikes would be restrained this year due to a muted industry outlook and demand-supply issues.

“Some companies might even choose not to give any hikes, while others may offer very minimal increments. This adjustment is a direct response to the prevailing supply and demand dynamics. In 2021-22, companies responded to high talent demand by offering substantially higher salary increments, which are now being streamlined,” said Anshuman Das, chief executive officer (CEO) and co-founder of leading recruitment firm Careernet.

Accenture will not provide salary hikes to its employees in India and Sri Lanka this year, except in critical skill areas and where it is legally mandated. The decision comes at a time when the company has guided for muted revenue growth of -2 to 2 per cent for the first quarter of 2023-24 (FY24). Accenture follows the September-August financial year. In March, it announced laying off 19,000 employees.

Bengaluru-based Infosys will roll out its wage hikes from November 1, Chief Financial Officer (CFO) Nilanjan Roy said while announcing the company’s second-quarter earnings.

Typically, Infosys rolled out hikes to employees below the senior management in April, and to those above in July. Infosys has lowered its FY24 revenue growth guidance to 1.0-2.5 per cent in constant currency from 1-3.5 per cent it had guided earlier.

Wipro will begin implementing annual merit pay increases for its employees on December 1 after deferring the rises by a quarter due to macroeconomic concerns and margin constraints. Wipro’s outgoing CFO Jatin Dalal had earlier said the compensation hike would take place in Q3, noting that it was not planned for Q2 due to margin pressure.

After deferring it by a quarter, Noida-based HCLTech is set to roll out hikes for junior employees from October onwards. Compensation review for the mid-to-senior management employees will be skipped entirely in FY24, amid a challenging business environment.

“In 2021, despite low inflation, salary hikes were substantial, whereas in 2023, even with high inflation, hikes have been less pronounced. This highlights the fact that salary hikes in the IT sector have a weak correlation with inflation and a stronger correlation with supply and demand dynamics,” Das said.

Ajay Vij, Accenture’s country managing director for India, said in an email to employees the company needed to make difficult decisions around promotions and rewards. While individual performance bonuses will be paid based on contributions, they will be significantly lower than last year. The company is also reducing promotions, postponing them until June 2024 for certain levels, allowing the organisation to return to growth.

“As we reflect on how our market has developed over the past year, we and our clients have had to navigate a macro environment that is tougher than we anticipated at the beginning of FY23. While it has played out differently across markets and industries, we have seen greater caution globally with lower discretionary spending and slower decision-making,” Accenture CEO Julie Sweet said in an analyst call post its fourth-quarter earnings.

“Our rewards philosophy is to provide market-relevant pay based on the skills and locations where we operate. We also consider a variety of factors, including the macroeconomic environment in making our decisions around pay and benefits,” Accenture said in response to a query from Business Standard.

Cost pressures seem to be one of the other key factors behind the muted salary hikes. “As large deals have been few, the cost of bagging a deal has been rising. Infrastructure costs have risen as offices have reopened, and real estate costs have risen. Another major cost hike has come up on the P&L due to the increase in the base salary levels driven by inflation in the last few quarters,” said Aditya Narayan Mishra, managing director and CEO, CIEL HR Services.

“Second reason has been the impact of automation that has brought in efficiency. All the companies in the industry are optimising their processes and adjusting their manpower costs,” Mishra said.