The Hindu Business Line : Tech sector wage inflation poised to sober down

Count down
Average hike may come down to 12-14% range (from 14-18%).
Industry expects clearer picture to emerge in next two quarters.
Will take about 11 years to be on par with rates in US: KPMG.

V. Rishi Kumar

Hyderabad, Feb. 20 With continuing pressure on export earnings due to the strengthening rupee and indications of a slowdown in the overall technology spend in the US due to the sub-prime crisis and the US economy slowing down, most software services companies expect some sobering effect on employee salaries.

Answering queries from Business Line, several top executives of tech firms and consultants expressed that moderation of wages would be ideal but that it was difficult to predict whether it would come down in the near future. Without hazarding any predictions, they felt that a clearer picture would emerge over the next two quarters.

However, some of them said that the average wage hike, which has been in the 14 to 18 per cent range depending on the company and the area of services over the last three-four years, may come down to the 12-14 per cent range.

The issue of salary hikes and compensation assumed importance after some recent reports talked about people being shown the door at TCS and IBM in India. TCS later clarified that performance-based exits are the annual norm.

Stemming attrition

If the last quarter of 2006 and four quarters of 2007 is anything to go by, most of the major IT companies have managed to stem the attrition levels with a slew of initiatives including wage hikes, work flexibility, clear career path, and flexible employee options.

The Chief Financial Officer of TCS, Mr S. Mahaligam, answering a query from Business Line last week on spiralling salaries, said: “The average salary hike is about 15 per cent per annum each year. We expect salaries to stabilise. This would broadly depend on 2-3 issues and therefore brings in a variable component.”

“However, the industry is concerned about ensuring margins, it would certainly put more pressure if a similar hike is to be offered this year,” he said.

The Vice Chairman of Nasscom and the Managing Director of Zensar, Mr Ganesh Natarajan, said “a slightly lower wage hike is good for the industry. But it is extremely difficult to predict if this will be done during the year.

“One of the major reasons for India’s competitiveness in the technology sector is the availability of a large talent pool and cost of delivery of services.

While the technology services industry is not just about cost arbitrage anymore, the rate at which salaries are growing is simply not sustainable and challenges the country’s competitive advantage,” according to Mr S. Chandrasekhar, Vice-President (People Relationship Management), Capgemini Consulting India.

The President and CEO of PerotSystems, Mr Peter Altabef, said: “Wages are a function of demand and supply. As salaries come up for renewal, the market conditions would decide the outcome.”

The KPMG Global Partner in Charge, Sourcing Advisory, Mr Pradeep Udhas, after releasing the KPMG report on knowledge process outsourcing in Mumbai last week, maintained that the salaries offered in India now would take about 11 years to come on par with the US and 17-18 years with the UK. Companies need to live with wage hikes.”