Information technology companies

Information technology companies may be putting up a brave front but the slowdown has alarmed them enough to make them cut variable pay of staff. Tata Consultancy Services , which recently evicted Infosys Technologies as the industry bellwether, is said to have made the first move in this regard. Mr. YogeshAggarwal and Mr.VivekGedda, analysts with HSBC, said the largest software services company paid only 25-50% of the total quarterly bonus to employees above the ‘associate consultant’ level in the June quarter. “Companies have already started paying lower percentage of discretionary bonuses,” they wrote in a note on Tuesday. By snipping the variable component of the salary, Tata Consultancy Services is protecting its margins — a common norm in times of slowdown when revenues slip on account of dwindling budgets of tech customers. Mr. YogeshAggarwal and Mr.VivekGedda believe the lower percentage of discretionary bonuses could offer close to 5% ‘margin cushion’ for large local tech services vendors likes Tata Consultancy Services and Infosys, which pay 30-40% of the salaries as discretionary bonuses. Nandita Gurjar, group Human resource head and senior vice-president, Infosys Technologies, said since variable pay is linked to performance, it would naturally constitute a lower percentage of the salary during slowdowns. “Yeah, it (variable pay) comes down when the revenue growth slows down,” she said. Gurjar, however, did not say whether techies at the second largest IT firm would be paid lower variable pay this year.

Infosys is said to have variable pay of near 30% of the total offshore wage bill. This, according to Mr. YogeshAggarwal and Mr.VivekGedda, translated into around 5% of margin cushion. “We ascertain that about 2.6% of margin protection is easier to achieve by cutting variable pay and avoiding significant damage to employee morale and productivity,” they said in their report. RostowRavanan, CFO, Mind-Tree Ltd, said the mid-sized tech company had trimmed variable salaries in 2008 to soften the blow from the last slowdown. He said from this fiscal year the company had introduced a new scheme where variable pay for junior employees was delinked to company’s revenue and tied to their own performance. “However, it (variable pay) will continue to be linked to profits,” said RostowRavanan. Typically, variable pay is lower at junior level constituting of less than three years experience and is split into three parts comprising company performance linked incentive (CPI), variable company performance incentive (VCPI) and individual performance incentive (IPI). Generally, companies avoid tinkering with the CPI component as it is paid on a monthly basis and could dent employee morale and productivity. It is usually the VCPI and IPI that get cut first. “Both VCPI and IPI account for about 50% of the total variable pay and are paid quarterly and provide a margin cushion of around 2.6%,” the HSBC duo said. Tweaks in variable pay have helped companies safeguard margins during rough patches in the past too. But E Balaji, managing director and CEO of MaFoiRandstad, a human resource consultant, said companies touch variable pay only as a last resort. “We get a feeling that companies have become cost conscious and are tightening belt by bringing down expenditures on travel, office parties and others. The natural progression would be to focus on incentives and variable pay,” he said. Mr. SunilGoel, director of executive search firm GlobalHunt, said the snip in the variable pay was a correction in the exorbitant hike that was introduced in it post 2008 downturn.

1st phase of TCS' Guj SEZ by Apr '12

Tata Consultancy Services (TCS), one of India's biggest Information technology companies, has targeted completion of first phase of its Gujarat Special Economic Zone (SEZ) - Garima Park by April 2012. The under-construction IT Park is located behind Infocity, Gandhinagar and is spread over 10.319 hectares. TCS has invested `129 crore in land and building for this project. Garima Park was granted formal approval for setting up IT SEZ on 17-December in 2007 and it got notified on 30 September 2008. Further, TCS was granted first extension of formal approval till December16, 2011 and now, it is seeking a second extension. In its request sent to Board of Approval (BoA) for extension of formal approval, TCS mentioned that "first phase is likely to be completed by March / April. An investment of `128.71 crore has been made in land and building for this project." When contacted, no one was available for comment from Tata Consultancy Services. Earlier, Tata Consultancy Services was sanctioned 10 acres in Infocity but due to a road splitting the plot in two parts, company decided to shift location to other side. Currently, the SEZ is located near National Institute of Fashion Technology (NIFT), Gandhinagar. Foundation stone for Garima Park was laid on February 1, 2006 by then CEO and MD of TCS, S Ramadorai. At that time, Tata Consultancy Services planned to develop the park in one and half years. However, development at the park has begun only now, after five years of inauguration. According to department of commerce, in 2010-11, Tata Consultancy Services exports from their Tamil Nadu SEZ were valued at Rs 4,145 crore.