Infosys cuts average variable payout to 70% for Q1

Software services major Infosys has reduced the variable payout for employees for the first quarter of FY23 due to the impact on margins.

An email sent to employees, a copy of which Moneycontrol has accessed, said that at an organisation level, the average variable payout is 70 percent. Infosys’ move to reduce payout comes days after its rivals such as TCS and Wipro deferred or reduced variable payouts for the April-June quarter in a bid to defend margins. IT companies’ margins have come under pressure due to rising employee costs such as salary hikes and paying a premium for hiring talent, even as they grapple with increased attrition.

Infosys’ email to employees said that the company is fueling growth momentum with investments in talent through hiring and compensation revisions. “While these investments have impacted margins in the immediate term, we are making structured efforts to improve our performance in the quarters to come,” the email read. Moneycontrol could not immediately ascertain when the email was sent.

The variable payout will be made along with August’s salary, which is as per the company’s schedule. While the average payout is 70 percent, an individual employee’s final variable payout will depend on their unit or department’s guidelines, and varies for different pay grades and departments.

Moneycontrol has reached out to Infosys for comment, and this story will be updated when they respond.

When the company announced its earnings for Q1, it said that it gave competitive salary increases for a majority of employees based on performance in April, and salary hikes primarily for senior employees was being done from July 1.

Infosys’s operating margin contracted to 20.1 percent in Q1FY23, as opposed to 23.7 percent in Q1FY22 and 21.5 percent in Q4FY22. Its headcount as of June 30 was 3,35,186.

“Q1 margin stood at 20 percent, a drop of 150 basis points versus previous quarter. The major components of the sequential margin movement were as below: Headwinds of 1.6 percent due to salary increases, 0.4 percent due to drop in utilization as we create capacity for future, 0.3 percent due to increases in subcon third-party other costs,” CFO Nilanjan Roy had said during the company’s call with analysts.

The company kept its margin guidance at 21 percent – 23 percent and said it will be at the lower end.

For Q1, Infosys’ attrition came in at 28.4 percent, and the company had a net addition of 21,000 employees during the quarter.

Wipro had announced that the company will not be paying out the variable pay to employees in Band C and above for the quarter, and junior-level employees will receive 70 percent of their variable pay. TCS, on the other hand, had delayed variable pay by a month for specific grades—C3A, C3B, C4, and equivalent—of employees.

Infosys, like its peers, has seen elevated attrition. On an LTM basis, its Q1FY23 attrition was at 28.4 percent. Sequentially, this was up from 27.7 percent in Q4FY22 and on a year-on-year basis, it was up from 13.9 percent in Q1FY22.

Infosys has said that attrition has been declining on a quarterly basis, but said that the impact of attrition, wage hikes, as well as the cost of new hires is very dynamic.

With the company’s current elevated attrition figures, which are higher than TCS and Wipro, what the impact on attrition will be with this move remains to be seen. Moneycontrol