India Inc may be going through tough times, but its wage bill seems to be increasing unchecked. For the third quarter running in December 2011, corporate India's employee expenses have jumped despite sluggish profits.
Results declared so far show that companies comprising the CNX 500 index spent 17.5 per cent more in employee expenses in the latest quarter, though profits barely changed. In the September quarter, employee expenses rose despite profits declining by 35 per cent.
A similar script of employee costs outpacing profit growth was seen in the preceding quarters too, when the economic slowdown was beginning to make a dent. The increase in employee costs could be a function of both pay increases and fresh hiring.
Widespread trend
The trend was widespread, with 60 of the 63 sectors comprising the CNX 500 showing a rise. The preceding three quarters too saw an overwhelming majority (between 89 and 97 per cent) of sectors pay a higher wage bill than a year-ago.
In fact, over the past 13 quarters ever since the global economic crisis began, employee costs as a ratio of sales have remained within a band of 6-7.5 per cent.
Leading the way
Among the sectors which were generous to their workforce in the September quarter include computer education, sanitaryware, alcoholic beverages and readymade garments where employee costs rose between 30 and 50 per cent over a year. Interestingly, the finance sector (comprising brokerages and NBFCs) from where much news about layoffs has been emanating recently, also figured among the top 10 sectors showing a rise in employee cost (around 24 per cent).
Not so surprisingly, the IT software sector has been in the forefront of this trend with employee costs rising by around 23-28 per cent over the past few quarters.
Initial results in the December quarter suggest a 30 per cent rise in the sector's wage bills.
In contrast, banks, metals and mining and tobacco were among the few sectors that saw wage bills grow at single digits, lagging their respective profit growth.
Dichotomy
So, what could explain the dichotomy between all the news about cost cutting and layoffs and the rising employee bills of Indian companies? Raging inflation and the war for talent may have played a role.
Or it could be that companies which have resorted to layoffs have handsomely rewarded the remaining employees to ensure that the show goes on.