Margin erosion: Why IT companies should think beyond variable pay cut

The recent reports of some large-cap Indian IT companies either deducting or delaying variable pay for their employees have triggered some concerns about how the future will pan out for the ecosystem. IT companies are facing varied global headwinds that have exerted pressure on their profit margins. The conditioned reflex for most of the biggies in the country’s $200 billion software industry is to prune a portion of the employee’s compensation. This is viewed as a compassionate step for employee retention as opposed to crude layoffs. The scenario is unlike US where the big corporations have either fired employees for mediocre performance or are planning to retrench them. By contrast, the six-million Indian IT workforce is not under the purview of labour laws. In fact, IT companies have held a vocal position that since their work pool is highly qualified and well paid, they don’t fall under the provisions of Industrial Disputes Act.