Will 20% hikes and higher fresher pay be the new norm in IT sector?

India’s third largest software services exporter HCL Technologies recently took everyone by surprise. It decided to raise fresher pay packages from 3.6 lakh rupees to 4.25 lakh for FY23. This new package would also be applicable to those freshers who joined the firm in FY22.

Last year, mid-sized IT firm Happiest Minds Technologies reportedly increased its fresher salary to 5.5 lakh rupees, which includes a base salary of 4.25 lakh rupees and the rest being joining bonus. 

Freshers’ salaries remained stagnant between 2.5 lakh to 3.5 lakh rupees for a decade now. In a bid to attract fresh talent and keep them for longer to counter the impact of rising voluntary attrition rate, companies are giving joining bonuses, double-digit pay hikes and promotions.  

Some employees are seeing their salaries double when they switch jobs. According to a news report, Infosys, which reported a 27.7% attrition rate last quarter, plans to have an average salary hike of 12-13%.

High potential employees will get increases of 22-23%. Globally too, tech talent is being rewarded as never before. Microsoft said it will “nearly double” its budget for employee salaries and boost the range of stock compensation it gives workers by at least 25%, mainly affecting “early to mid-career employees”.

Shiv Agrawal, managing director at recruitment firm ABC Consultants, believes that the recent salary hikes are among the highest ever. 

An HR executive told Business Standard that salary hikes at TCS are already in double digits and in some cases it's upwards of 25%. In the third quarter of FY22, TCS had given promotion to over 110,000 employees. At Wipro, the company announced that at the junior level, promotions will happen on a quarterly basis.

Employee costs for the top 5 Indian IT services have touched an all-time high of 2.85 trillion rupees last fiscal, driven by strong fresher hiring and pay hikes. They grew between 15% to 35% for these companies. 

Universities that see bulk hiring noted that differential hiring has gone up. What this means is that based on a student’s skills, he/she can attract a higher package.

TCS has a programme called TCS Digital that looks at hiring students with specialisation and the pay package starts from 7 lakh rupees. Cognizant’s Digital Next, for which if selected, a fresher can get a starting pay package of 6.75 lakh rupees. Wipro Turbo, a similar programme from Wipro, can take a student’s salary package to Rs 6.5 lakh.

The sector had seen major layoffs just before the pandemic. Companies are now trying to fill the gap to cater to the strong post-pandemic demand pipeline.

For long, enterprises have had the command over the pay and this seems to be changing now. While IT companies have been managing their operational costs by keeping a tight check on the fresher salaries, they may find it difficult to attract new talent now at the old packages. We can therefore expect the industry to settle at an overall higher pay structure even after the current talent supply issue is resolved.