IT firms laid low by high attrition rate

TE Raja Simhan | Updated on: Aug 10, 2022
While Cognizant consistently reported over 30 per cent attrition in the last five quarters, its peers TCS, Infosys and HCL Tech saw the number doubling between Q1 FY22 and Q1 FY23

While Cognizant consistently reported over 30 per cent attrition in the last five quarters, its peers TCS, Infosys and HCL Tech saw the number doubling between Q1 FY22 and Q1 FY23 | Photo Credit: SOMASHEKARA GRN

While some companies are expecting the high rate to continue for some time, others say it is slowing down

The Indian IT services industry has been badly affected by high rate of attrition, which started to climb steadily since the quarter ended June 2021 (Q1 FY22) with a total of 4.89 lakh employees leaving the top eight companies, including Tata Consultancy Services, Cognizant, Infosys and Wipro, in the last five quarters.

Interestingly, they overall achieved a gross hiring addition of 8.5 lakh in the last five quarters — thus, not only compensating for the loss but also hiring additionally, according to Xpheno, a specialised staffing company.

Kamal Karanth, co-founder, Xpheno, said the nearly half a million attrition-related talent movements are a loss of expertise, experience and upskilling investments that enterprises did on this talent. Add to this the cost of recruitment, package hikes and retraining costs, enterprises are left with a lot to explain and justify on their P&Ls.

Talent action

The last five quarters will be remembered in the history of Indian IT service bellwethers for the sheer volume of talent action they clocked. Achieving record-high net headcount additions while tackling unprecedented attrition spikes is no easy feat.

While Cognizant consistently reported over 30 per cent attrition in the last five quarters, its peers TCS, Infosys and HCL Tech saw the number doubling between Q1 FY22 and Q1 FY23, and a substantial increase for Wipro and in the same period.

The high attrition, in turn, is increasing the operation costs. Some companies are expecting the high attrition level to continue for some time, while some others say it is slowing down. There is no uniformity among IT companies in reporting attrition numbers.

‘No impact on business’

“We are surprised with a 500 bps sequential increase in attrition to 36 per cent. We understand that the labour market is tight; however, other IT companies managed a decline in annualised attrition on a sequential basis. We are surprised with a rather high involuntary attrition of 5 per cent, especially against the backdrop of a talent crunch. Attrition rate is high onsite as well. Interventions are necessary; else it can impact growth as well as margins in the future,” said a research report by Kotak Institutional Equities on Cognizant attrition numbers.

However, a spokesperson for the company said the business was not impacted. “We reported the largest quarter ever again in Q2. Attrition is an industry-wide issue and we have been working aggressively to address it,” the person added. For the June quarter, Cognizant ended with 3.41 lakh employees globally with over 75 per cent in India.

No uniformity

While discussing financial results, Cognizant’s CEO Brian Humphries told analysts that attracting, retaining and rallying talented employees is one of their top priorities. In the past year, the company had invested record levels in compensation, overhauled the promotion process, invested heavily in learning and development initiatives and introduced a series of other measures, including educational programs and returnships.

Rajesh Gopinathan, CEO and Managing Director, TCS, told analysts that there are two things that are playing out. One is the wage increase, which is a fairly well understood one. The other is the continuing demand environment and the attrition environment that is leading to the increased operating costs on the employee side. “The attrition is not totally unanticipated, but it is continuing and we think probably it will take another few months before it starts to come down. So, till then the margin pressures will continue but we hope to sequentially improve from where we are, given that we have taken a hit on that completely,” he said.

However, Salil Parekh, CEO and MD of Infosys, said the company is seeing attrition starting to come off a little bit and that will clearly have a positive impact with respect to compensation. So the timeline is not clear, it depends on how the macro evolves. For Infosys, voluntary last twelve months (LTM) attrition increased marginally to 28.4 per cent, however, quarterly annualised attrition declined by 1 per cent from Q4 level, despite Q1 usually seeing an uptick due to seasonality.

Wipro’s CEO and MD Thierry Delaporte, too, said attrition continued to moderate. That’s three consecutive quarters of improvement in employee retention in reality; in Q1, it was down to 23 per cent on the trailing 12-months basis and the company expects further moderation ahead.

Published on August 10, 2022
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