Bengaluru: India’s IT services companies may freeze pay hikes and cut bonuses to deal with the business slowdown sparked by shutdowns due to the Covid-19 outbreak globally, replicating moves made during the US financial crisis over a decade ago, senior executives and analysts told ET.
“Bonus, variable pay or any increment is right now on hold,” C P Gurnani, CEO of Tech Mahindra, told ET. “At this stage, most of the world is addressing their first priority: keeping people safe”.
India’s technology services firms have asked those employees who can deliver remotely to work from home. They have sent trainees back home from campuses in a bid to keep to social distancing norms and reduce the spread of the virus.
Most India-based IT services firms have eight out of ten employees working in centres locally.
The fallout of the outbreak in key markets in the US and Europe has also made analysts revise growth for the IT sector for FY21. Kotak Institutional Equities has cut revenue growth estimates of some large and mid-cap tech services companies by 2-4% and of the industry by 3-8%.
Accenture on Thursday cut its guidance for FY20 (September-August) citing the uncertainty due to the spread of the virus. It expects to grow in the range of 3-6% as against its earlier forecast of 6-8%. In the first six months, it has grown revenue by 8%, effectively indicating that business will be flat or negative in the next two quarters. Accenture’s business is a key barometer on the impact on other Indian IT companies.
Tata Consultancy Services has already completed its annual appraisals for the year, but has not yet decided on the payouts, said a senior TCS executive, who did not want to be named.
“We are still dealing with the immediate fallout. No discussion on pay freezes has been done,” the TCS executive said. TCS did not respond to queries by ET.
Companies such as Wipro, HCL Tech and Infosys hand out hikes later in the year.
“The crisis will likely negatively affect profits and to the extent that bonuses are tied to firm performance and profitability, they will automatically be reduced. In this case employees are likely to view the reductions as justified,” said Peter Bendor-Samuel, CEO, Everest Group.
However, if the compensation adjustments are made to keep profits high then the firms are likely to have morale and turnover problems going forward, he added.
IT companies have seen demand and bill rates crash, as clients have moved to doing only the most crucial work to keep their business running, a Nasscom executive said. New deals are not being signed and old ones are being placed on standby, the person said.
