IT companies enforce cost control measures amid rising employee expenses

Attrition rates of TCS dropped from 20.1% to 17.8%, HCL's from 19.5% to 16.3%, and Wipro's decreased from 19.2% to 17.3% all in the last quarter

Information technology (IT) companies, including Tata Consultancy Services (TCS), HCLTechnologies, and Wipro, have been compelled to defer onboarding and promotions due to high employee costs. This decision stems from the need to implement strict cost control measures, driven by a weak deal pipeline and poor visibility for the upcoming quarters.

According to a recent analysis by Mint, wage costs as a share of revenue for these three companies reached a record high in the first quarter of the financial year, the highest in at least the past five years. Among the IT giants, TCS faced the greatest burden of employee costs compared to revenue, as wage costs consistently outpaced revenue growth in the past eight quarters. HCL experienced this five times, while Wipro faced it in all eight instances.

Kamal Karanth, the co-founder of Xpheno, a tech recruitment firm, stated that the quarter-one results for the financial year 2024 (Q1F24) were bittersweet for tech talent. The lack of significant net headcount additions is particularly challenging for freshers and entry-level talent.

During the April-June quarter, all three companies witnessed a decline in attrition rates, a trend that has persisted for the past 4-5 quarters. TCS' attrition rate dropped from 20.1 per cent in the previous quarter to 17.8 per cent, while HCL's attrition declined from 19.5 per cent to 16.3 per cent sequentially. Wipro's attrition rate also decreased from 19.2 per cent to 17.3 per cent in Q1FY24.

Also Read: Compensating employees with money cuts attrition rate to 5%: Report

Thierry Delaporte, Wipro's CEO, highlighted their efforts to streamline operations, reduce overheads, and eliminate unproductive layers. The company will adjust its hiring plans based on business requirements but did not hire any freshers in the June quarter.

The impact of cost control measures is evident in recruitment numbers, with a decrease in hiring mandates, even affecting campus recruitment. TCS experienced modest growth in employee strength, with 523 new recruits compared to 821 in the previous quarter.

HCLTech reported a sequential decline of 2,506 employees but hired 1,597 freshers, a significant drop from 4,480 in Q4FY23. Wipro's headcount also decreased from 256,921 in March to 249,758 in the June quarter, as per their recent results. Infosys is expected to announce its results on July 20.

Industry experts suggest that muted demand will impact the variable pay component for employees, with only top talent receiving a higher proportion . This has been witnessed by the increasing number of "crorepati" employees in companies such as Hindustan Unilever, ITC, and United Spirits, as earlier reported by Business Standard.

Also Read: TCS records higher attrition rate among women than male colleagues in FY23

Aditya Narayan Mishra, CEO of CIEL HR Services, explained that variable pay, delays in mandate closures, and a focus on employees with niche skills will be affected. He does not foresee a significant increase in recruitment pace in the IT sector over the next few quarters.

TCS has announced an 8-10 per cent increase for high performers and 12 to 15 per cent for exceptional performers in the annual compensation review. Wipro plans to provide approximately 80 per cent variable payout for the first fiscal quarter.