In what has become an industry trend, Infosys is now the latest company to make changes to its variable payouts for the first quarter of FY23. India's second largest IT services business, has reduced the average variable compensation of employees to around 70 percent for the June quarter due to margin squeeze and high employee expenditures, according to sources.

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Recently, Wipro delayed variable pay for employees owing to margin pressure, inefficiencies in its talent supply chain, and investment in technology. Tata Consultancy Services, a larger rival, has reportedly delayed quarterly variable compensation payouts for some employees by a month.

According to reports, Infosys has slashed variable pay for the June quarter or Q1 FY23 to around 70 percent, and the employees have been informed about the same.

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Infosys reported a lower-than-expected 3.2 percent increase in June quarter net profit due to rising costs last month. However, citing solid demand and a robust transaction pipeline, the company boosted its full-year revenue growth forecast to 14-16 percent.

The firm maintained its margin guidance of 21-23 percent, but stated that given the increase in cost environment, it will be towards the lower end of the margin expectation. In the first quarter of FY23, Infosys' operating margins were over 20 percent.

Higher employee benefit expenditures, subcontracting charges, and travel expenses increased total costs for the Bengaluru-based business in the June quarter. As a result, an elevated level of attrition, which leads to greater staff expenditures, is reducing the profitability of the Indian IT industry.

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In the Q1 earnings report, Infosys' Chief Financial Officer, Nilanjan Roy, stated that the firm is fueling the strong growth momentum with smart investments in talent through recruiting and competitive compensation adjustments. ”While this will impact margins in the immediate term, it is expected to reduce attrition levels and position us well for future growth,” Roy had said.

According to the corporation, it is continuing to optimise key cost levers in order to drive operational efficiency. However, compensation increases reduced margins by 160 basis points, and utilization fell owing to the impact of new recruits.

Given the healthy demand picture, the business maintained that they were more in the nature of "investments," and guaranteed that it will be looking at cost-cutting levers such as improved utilisation and increased automation.

Wipro has also reduced variable pay for employees owing to margin pressure. Managers at the C-suite level of the firm will not receive any variable pay, while employee grades ranging from freshers to team leaders would receive 70 percent of total variable pay, according to sources familiar with the situation.

(With inputs from PTI)