The IT brain drain

Last financial year, the top 10 IT companies lost an estimated 10,000 people.

The numbers are disconcerting. The top four information technology (IT) services companies in India "� Tata Consultancy Services (TCS), Infosys Technologies, Wipro Technologies and Satyam "� lost over 1,800 professionals each last financial year, going by their own public announcements.

Cognizant Technologies, the largest multinational operating in India, lost over 800 employees last financial year. So the top five IT companies here collectively lost over 8,000 people last year, though a good portion of them may have switched to one or another of these five IT companies.

Take the top 10 companies in India and the attrition was over 10,000 employees last year "� and IT company executives privately agree with this assessment. Last financial year was, of course, an unusual year "� attrition rates jumped from an average of 6-8 per cent in 2002-2003 to an average of 13-17 per cent in 2003-2004.

To be sure, it's tough to arrive at figures on how many employees move out of IT companies. That's because each company calculates the number of people it has lost on a different basis. Wipro, for example, announces the attrition figure for the quarter on an annualised basis.

Infosys announces its attrition number on a trailing 12-month basis. Sometimes, the difference can be significant. For the last quarter, Infosys said that its attrition figure on a trailing 12-month basis was 10.9 per cent; the number was 11.7 per cent on an annualised basis for the quarter.

It doesn't help either that IT companies disclose their attrition figures in percentage terms and don't furnish absolute numbers. So Ice World has used an attrition percentage that approximates the attrition figure publicly announced "� we calculated the attrition figure based on the attrition percentage announced every quarter during the last financial year.

Among other conclusions: IT companies lose anywhere between 20 per cent and 40 per cent of their gross employee additions in a year. That means that for every 100 employees that they add in a year, they lose between 20 and 40 every year.

Companies like Infosys and Cognizant have stated that the bulk of the people they lose comprises the most junior staff. Says Bhaskar Das, vice-president, human resources, Cognizant: "Of our overall attrition, our voluntary attrition has been about 7 per cent, and it is heavily weighted towards the most junior members of our staff in India." But Wipro and Satyam have publicly acknowledged that they are losing a sizeable portion of their crucial middle management staff.

Why did IT companies lose so many people last year? Among other reasons, multinationals such as IBM, Accenture and Oracle that have either set up shop in India or have expanded poached employees last year.

Says Bijay Sahoo, vice president, human resources, Wipro Technologies: "The industry last year grew in a huge manner and the multinationals had to take people from the installed base available. The demand is very high and supply so low. Multinationals cannot wait for four to six months, the time that it takes to train a fresher. It is easier to poach."

The multinationals pay 15 per cent to 40 per cent higher salaries to Indian employees, depending on their level of seniority.

There's no doubt that the IT industry faces a shortage of skilled staff. The National Association of Software and Service Companies estimates that the top 20 companies in India require close to a lakh technical people, but Indian universities produce only about 94,000.

This apart, about 400 top managers (vice presidents and above), 2,000 general managers and about 5,000 managers are required every year. "There is a huge gap in availability and the challenge is to retain people," Sahoo says.

An analyst at a leading multinational IT data tracking company says: "The absolute numbers that are being lost are clearly an indication that Indian companies need to get their HR act together. Salary levels have to go up and match MNC levels."

But if Indian IT companies were to do so, their margins would shrink "� staff costs are typically between 40 per cent and 45 per cent of the total cost of doing business. But they may have no other option. Says Sahoo: "We are planning to do something that would see us effect corrections in salary levels, apart from giving stock grants to key managers."

The cost of losing people has to be measured in terms of hiring new talent. According to Ice World estimates, the search cost for a fresher is between Rs 8,000 and Rs 10,000. This can go up to between Rs 20,000 and Rs 40,000 for lateral recruits, depending on their experience and level.

And for a company that recruits freshers and experienced people equally, the cost per recruit could range between Rs 15,000 and Rs 25,000. So if a company ends up losing over 1,000 people every year, it winds up having to fork out at least Rs 1.5 crore to replace them.

The good news is that Indian IT companies report that a good number of people who left to join multinationals are returning. Says Cognizant's Das: "A number of people who left Cognizant to join others are coming back to us as they do not find significant opportunities aligned with their career aspirations."

Wipro too says it is experiencing just this. "One of the reasons why this is happening because we are able to offer our employees on-site opportunities, something the multinationals cannot," Sahoo concludes.