Hike in demand scenario manages to keep wage hikes in single digit

Indian IT firms are in better position when hiring entry level engineers

An uptick in demand environment usually means acceleration in wage pressure and a spike in attrition. But that does not seem to be the case this time around. 

 

According to analyst report attrition has remained low (in some cases has gone up) and wage inflations remains in single digit. 

 

“The bargaining power of companies with respect to entry-level employees is at its peak with real wages at their lowest in more than 15 years. While some of the reasons for this may be cyclical and could reverse, we believe that part of the reason is structural, too,” said Anantha Narayan and Sagar Rastogi of Credit Suisse in their report. 

 

The report highlights a few markers point to this lack of pressure. For instance, mid-sized companies such as Tech Mahindra and Hexaware have been able to postpone wage hikes without any significant increase in attrition. TCS's guidance of entry-level hires is the same as FY09 despite twice the overall employee base and a vastly different outlook (more positive) on the demand environment.

 

TCS, still one of the largest hirer from campus also acknowledged that joining ratio of students have also gone up. “Last year we saw joining ratio go up to 73-74 per cent. This used to be in the 69-70 per cent range. This year also we are expecting joining rations to go up,” said Ajoy Mukherjee, executive VP and global head, human resources, TCS in an earlier interview.

 

More over fresher joining salary has remained unchanged for the last four years between Rs 3.15 lakh to Rs 3.50 lakh. Mukherjee agreed that the wage hikes at fresher level has been stagnant. “Yes, looking at inflation, it is becoming slightly more difficult for trainees at this point in time and that is something we are aware of. But, at this stage, I am not considering any hike as far as campus recruits are concerned,” he said.

 

The Credit Suisse report also points that the average salary hike for offshore employees with at least one year experience has also come down since FY12. For FY13 average wage hike for an employee with one year experience was 8 per cent which was down from 13 per cent in FY12, and has come down further to 7 per cent in FY14.

 

Other than the uncertain economic environment what is contributing to this scenario is improvement in the supply side as colleges have started to collaborate with the industry that will reduce the training cost for companies and time to ‘on board’ students. 

 

And finally, changing business model too is contributing to this scenario. With companies focused on non-linear business model, a chink of work is also getting automated.

 

“Indian companies have also stepped up overseas hiring. The companies have entered new areas of IT services where local talent and expertise become important. Also, given potential immigration issues and the difficulty in getting visas, companies have ramped up hiring onsite at the cost of local hires. While this may create margin issues, it does ease the pressure on wages domestically,” said the report.