Salary hikes and bonuses start to come down for Indian IT services sector

FY24 hikes will stay at lower levels than the spike seen in FY22 and 23

The crazy salary hikes and bonuses with attrition hitting the roof is finally tempering down for the Indian IT services sector. This corresponds with the fall in hiring among the big four IT services players. HR experts believe that the compensation packages are already down and will stay at these levels even for FY24.

According to data from Xpheno, a specialist staffing firm, IT Services cohort has registered a 41% drop in hiring action since April 2022. Tech startups have slowed down their hiring by 63% and the Software products cohort has dropped hiring action by 58%. This overall drop in hiring action has softened the talent war. Xpheno’s data suggests an overall drop of 60%-70% in the number of offers chasing talent.

“The hiring volume and velocity drop has resulted in drop in offer negotiations and counteroffering. Talent in the market that earlier juggled with 7 to 8 active offers are now having to choose between 2 to 3 offers max. The pendulum has clearly swung in favor of the employer after a period of Talent controlled job market,” said Kamal Karanth, co-founder Xpheno.

Karanth shared that the outlook for compensation hikes this year are muted in comparison to the last year's figures and he says that they will remain at this level for FY24 as well. “A relative drop by 30%-40% over last year's averages is on the cards this year. For certain experience levels and skillsets, average compensation hikes that were in the 11% to 14% last year are expected to drop to the 5% - 8% range this year,” added.

Experts also point out that this could well go into FY24, provided there is no significant spike in demand. 

When it comes to compensation, most of the IT firms have announced single digit average salary hikes, however they maintain that some segments will see double digit hikes. For instance, TCS announced a salary hike of 6-8 per cent. Cognizant rolled out salary hikes of 7-10 per cent. Of course these are average hike numbers and in certain bands this becomes double digit too. But companies too have said that the need for giving out large hikes has come down.

Milind Lakkad, CHRO, Tata Consultancy Services (TCS), post the results acknowledged the trend. “We have seen wage normalisation happening over the past few months. Things are stabilizing on the salary hike front as well,” he added.

This trend is also seen in the out of sequence promotions and out of cycle increments that were last year, are holding their reins tight this year. “Talent that were onboarded with unprecedented package hikes last year, are set to face a tighter revision scale this year. However, there would be still be a 2% - 3% of the enterprise that would experience higher rates by virtue of being outliers on a critical project, and holding a niche skill set or tech stack experience,” explains Karanth.

A R Ramesh, director digital business solutions, professional staffing and international engagement at Adecco believes that the unreasonable hikes that were seen earlier this year are getting normalized. “We estimate future hikes to be more in line with the inflation trends for career moves and also towards retention of the existing talent. Many companies are paying out 100% of the variable pay as well. Demands for new hires are muted and reflect the market reality.  While the demands are currently 30% of the peak levels a year ago, the requirements continue to be robust. So companies have to ensure that requisite talent is motivated and retained” he added.