Respite likely for IT cos on HR costs

Finally, Indian IT industry is likely to get some respite from elevated attrition numbers in coming quarters. Market leader Tata Consultancy Services announcing its results said the company believes that attrition has peaked now. "We believe our quarterly annualized attrition has peaked in Q2 and should see it taper down from this point, while compensation expectations of experienced professionals are moderate," Chief HR Officer of Milind Lakkad said. Though the numbers are yet to reflect on TCS' Q2 results, the company said it would take some time to bring down attrition on LTM (last twelve month) basis. The employee attrition rate inched up to 21.5 per cent in the July-September quarter from 19.7 per cent in April-June.

Numbers are not likely to be very different for other top or mid-tier IT firms with some exceptions. Despite several measures, Indian IT firms are reporting more than 20 per cent employee attrition for several quarters now. To contain such record attrition, companies have gone out of their ways to retain talent through out of turn payouts, promotions and employee stock options facilities among others. This, in turn, has pushed up wage cost to record high levels. In a people-centric business like software services, companies usually spend upwards of 55 per cent towards employee compensation. So, any fall in attrition will directly add to the bottom line of companies. In this context, TCS' commentary on employee churn augurs well for $225 billion worth Indian IT industry.

Moreover, the commentary on the realistic expectation of mid-level employees on compensation front is also another positive for the industry. In the last one year, compensation has increased substantially with some staffers even doubling their salaries. Increased job opportunities coming from statrtups and captive technology centres of MNCs in India have led to rise in demand. With Covid pandemic acting as the key trigger, talent demand has touched the roof as enterprises go digital in droves. However, as the world limps back to normalcy, the pent-up demand is receding fast. Normalisation in technology spend along with recessionary fears owing to the Russia-Ukraine conflict and high inflation, is leading to demand slowdown across industries. Therefore, once hot job market is cooling off. As demand-supply mismatch gets bridged, mid-level engineers are also coming to terms with the new reality. Salary expectations, therefore, are not getting tampered to the market realities. Hopefully, this will reduce the wage cost of Indian IT firms which are facing margin pressure in recent quarters.

Meanwhile, TCS' commentary on moonlighting reflects its disapproval of the practice. TCS joined its peers Infosys and Wipro in showing its displeasure at such working method. Terming it unethical, the company said such practice goes against the very principle of its employment contract. As employees come back to offices, moonlighting as a concept is likely to be reduced in coming quarters. The combined opposition of Indian IT biggies shows that such practice will take time India to be acceptable. In this perspective, employee productivity is likely to rise, which will support the margin profile and revenues. Amid fears of recession, IT companies are getting some respite on the HR front to manage cost better.