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Until very recently, Infosys was one of the best companies to work for. It may well still be; there is not much choice. During bad times, almost all companies target employee benefits. Infosys is no different.
The fall from grace is not sudden. Around a year ago, a business magazine had written: “The Infosys Man had pizzazz. Now he has pizza... Workloads have increased. Salaries have been frozen. Responsibilities have increased. They have been accompanied by variable pay increases, which mean nothing when the company’s performance has slipped.”
After one quarter of giving a happy surprise with its results, Infosys has delivered a shocker. (The share dropped 20 per cent in one day.) More pertinently for its employees, there has been a key change in its HR approach.
“We have always been extremely innovative on the compensation front,” said CEO & MD S.D. Shibulal, after the company announced its results recently. “Last year, though the environment was very tough, we had given a compensation increase. One of the things we are looking at is to restructure the salary so that we balance the variable and the fixed salary.” Fixed pay will go up; the proportion of variable pay will decline.
As salary increases have also been promised as part of the package, everyone is happy. The problems will start a little later. Infosys has had a high attrition rate for some time, not unusual for the information technology (IT) industry. It is not possible to study the quality of this outflow; there are too many subjective parameters. But this is where the real damage will be.
“In any crisis, the people who can go will go; corporate loyalty is an employer-created myth for losers,” says Mumbai-based HR consultant D. Singh. “The talent tends to depart for greener pastures. With each departure, the quality of your staff suffers.”
Under normal circumstances, the fresh intake makes up for this. For a company like Infosys, there is still demand and the best from the campuses head that way. But Infosys has shot itself in the foot here too. It has recruited fresh grads but not issued them joining letters because of the crisis. There is inevitably a sense of disillusionment.
When do companies start stressing the importance of variable pay? There is no real rule. There are managements that want to get the last drop out of their employees in a crisis situation and link pay to performance. Other companies do the same thing but approach it differently. They increase the variable pay as this is linked to the bottomline. A higher variable pay when the bottomline is shrinking means a reduced salary outgo.
Infosys, it must be said, is planning to increase fixed pay in absolute terms. So one cannot really quarrel with the HR approach.
But there is a bigger problem that Infosys and others in the Indian IT sector will have to face soon. The going has been good so far. But the sort of work these companies have been doing has become commoditised today. In future, the demand will be lower and salaries and other benefits will shrink. IT employees may not even get the pizzas of life; let them have bread.
There are already straws in the wind. A recent report by Kotak Institutional Equities says that the demand for engineers from the IT sector is coming down. “We attribute slowdown in absorption of engineering talent to the slowdown in revenue growth rates of Indian IT, change in nature of demand and the effort by companies to lower cost of delivery by recruiting science graduates.”
Is IT then the God that failed? No. But it is no longer the latest Messiah. New jobseekers should look at other sectors for growth opportunities. Retail could be an option once the neo-Luddites are done with their current opposition. The future of IT jobs depends on who you talk to; the answer could be variable.
MANAGING THE MIX
Fixed vs. variable payEncouraging productivity: The purpose of performance-based compensation is to reward well-performing employees and encourage them to work harder. Performance-based compensation gives workers incentives to be more productive, which can ultimately result in higher sales and higher profit for a company. At the same time, employers don’t have to pay as much for under-performing workers.
Competition between employees: A potential advantage in offering fixed wages instead of variable pay is that a variable pay system can create unhealthy competition between employees.
Putting pressure on customers: Sales employees commonly receive at least a part of their compensation based on performance. One of the drawbacks of commissioned-sales employees is that they can come off as overbearing if they push too hard to make sales to earn commissions. Employees with fixed wages don't need to put pressure on customers.
Retaining workers in lean times: Workers who receive commissions do well when business is good, but they do poorly when business is bad. In lean times, fixed wages can be more effective in keeping employees from leaving for other opportunities.
Source: Adapted from Gregory Hamel, Small Business