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HCL Tech changes staff cost structure

Converts part of fixed salary component into variable one

Bibhu Ranjan Mishra  |  Bengaluru 

HCL Tech changes staff cost structure

HCL Technologies, India’s fourth largest information technology (IT) services company, is learnt to have tweaked its employee salary structure by converting a part of their fixed salary into variable one, a move IT companies usually undertake when they sense unpredictability in revenue inflow.

According to employees and analysts, the restructuring of employee salary was effected after its annual wage hike this year. The company had announced a wage hike of eight per cent to its offshore employees and two per cent to onshore employees with effect from July and October, respectively.

Sources also added mostly the delivery and sales organisations of the company have been affected by this move, while the annual hike for support staff is yet to be announced.

“This move, which came along with the latest performance appraisal, has reduced the overall wage cost of the company. The change in variable component of the salary varies across the level, but in majority of the cases the net salary outflow has been lower for the company,” said a Mumbai-based analyst.

Employee variable costs in IT services companies vary on seniority. While for the entry level and junior employees, it could be in the range of 10-20 per cent, it can go as high as 50 per cent in the case of senior staff, according to HR experts.

While HCL Technologies did not elaborate about this move and its reasons, in reply to an email, it said, there has been “no change in the net take-home earning potential for our employees”.

“At HCL, we are committed to design people practices that ensure the organisation is future ready for the 21st century – and recognise and reward employees behaviours and beliefs that enhance the ‘value zone’ in their interaction with employees,” a company spokesperson said in an email statement.

“Recognising that client centricity and collaboration is critical to individual and collective success, we have linked performance bonuses to meeting engagement and client specific goals rather than rewarding individual productivity goals only,” it added.

Analysts, however, say increasing variability in cost structure could be a reflection of slower revenue growth, the company might be anticipating to witness. Interestingly, the Noida-headquartered company in a regulatory filing on this Thursday said it was expecting tepid revenue growth for the quarter ending September this year on account of client issues, transition timelines for complex engagements and adverse currency impact.

The company also said it was considering setting aside around $20 million, owing to some differences with a large client on the programme objectives of a contract.

Experts believe it could be a case of falling margins apart from decelerating revenue growth. “HCL Tech has witnessed steady deceleration in revenue momentum along with erosion in operating margin. Over the past eight quarters, year-on-year revenue growth has moderated to 9.3 per cent (Q4FY15) from around 14.5 per cent in Q2FY14, whereas Ebitda (earnings before interest, tax, depreciation and amortisation) margin has eroded to 21.5 per cent (Q4FY15) from 26.3 per cent (Q1FY14),” according a recent report by a brokerage firm.

IT companies usually try to make their cost structure variable when they anticipate some volatility in the demand environment. For example, Mphasis, a Bengaluru-based mid-sized IT services company, in the past had converted a part of the employees fixed salary component into variable. However, that was the time when the industry was just emerging out of the impact of a global economic recession.

However, in a recent past, there had not been any instance of any IT services company adopting this practice. Instead, in 2013, Infosys, India’s second largest IT services company, restructured employees salary by increasing the fixed component in their salary, in order to tame attrition which was steadily on the rise.

Employee salary accounts for about 70 per cent of IT services companies’ overall revenues. In case of HCL Tech, the salary bill accounted for close to 66 per cent of its overall revenues at the end of Q3 FY15, up from around 61 per cent in Q1 of FY14.

First Published: Fri, October 02 2015. 00:45 IST