Faster rate of wage hike may impact profitability, says Infosys

Country’s second largest IT services firm, Infosys sees rising wage cost as an area of concern impacting its future profitability on the back of increased hiring in client locations apart from faster rise of employee compensation back home.

In a regulatory filing under Form 20F to US market regulator, the IT major said with stricter immigration rules, the company has ramped up hiring locals in key client geographies such as US, UK, Europe and Australia, which will push up its overall employee cost in the coming years.

“We have recently increased and expect to continue to increase hiring in other jurisdictions, including the United States, the United Kingdom, Continental Europe and Australia. Such hiring could result in overall increased wage costs thereby impacting profitability,” the company said in the regulatory filing.

As part of its localisation drive, Infosys recently said that it had already hired 4,000 out of its total target of hiring 10,000 locals in US in next few years.

The Bengaluru-headquartered firm also said that it was witnessing faster rise of wages in India amid competitive pressure.

“The competition has led to wage pressures in attracting and retaining employees, and these wage pressures have led to a situation where wages in India are increasing at a faster rate than in the US, which could result in increased costs for companies seeking to employ technology professionals in India, particularly project managers and other mid-level professionals,” it said.

In the first quarter of FY19, Infosys operating margin was impacted by 100 basis points due to wage hike rolled out for 85 per cent of its above 200,000 employees effective April 1. The company has given hikes in the range of mid-single digit to high-single digit in this financial year.

The IT major, which has gone through a lot of leadership transition in the last one year, also saw its attrition level going up in the last quarter. Overall attrition level jumped to 20.6 per cent in the first quarter, 400 basis points rise over 16.6 per cent reported in the preceding quarter.

In April this year, Infosys had created a special bonus pool of $10 million to be paid out to its over 200,000 employees in addition to their regular quarterly variable pay in its bid to check high level of employee exits.