IT fresher salaries stagnates even as war for tech talent intensifies in India

Stagnating fresher salaries

Industry executives say there is a good reason for fresher salaries in the IT services industry barely rising over a decade: there is more supply than demand.

Close to 10-15 lakh engineers graduate every year in India, and a significant portion are not employable. As a Noida-based IT executive pointed out, “Why would we pay more money when there is ample supply and we are investing in training them? Salary is a function of demand and supply.”

Consequently, companies have continued to hire freshers for more or less the same package for over 10 years. To put this in perspective, the CEO salaries for the top four IT companies have seen over 500 percent increase in compensation during the same period.

Let us take the top four IT companies in India. In FY10, its CEO N Chandrasekaran drew a salary of Rs 2.98 crore. His successor Rajesh Gopinathan few Rs 20.36 crore in FY21. Infosys’ CEO S Gopalakrishnan FY10 was Rs 1 crore, which now stands at Rs 49.68 crore. HCL Tech CEO C Vijayakumar’s annual salary was Rs 32 crore and Wipro CEO Thierry Delaporte was the highest paid CEO with his salary standing at Rs 64 crore in FY21. In FY10, the CEOs of respective companies earned Rs 4.5 crore and Wipro’s joint CEOs Girish S Paranjpe and Suresh Vaswani Rs 2 crore and Rs 3.1 crore.

Then came the pandemic, and demand and supply tilted in favour of the talent. Fresher hiring provided a viable alternative to backfill attrition, improve their supply pipeline and also contain the rising cost of lateral hiring.

But, it might not be all smooth a ride, thanks to the 2021 campus hiring frenzy.

Advantage startups, MNCs

With business demand on the rise over the last couple of quarters, campuses across India are seeing recruiters swarming, looking for students to hire, many hiking salaries to attract quality talent... except for IT services companies.

Vellore Institute of Technology’s  director of career development Samuel Rajkumar V said that product and consulting companies, as well as large recruiters such as Amazon and Microsoft, have increased their salary packages this year, while IT services’ firms continue to offer packages in the Rs 3.5-4 lakh range.

Arpit Agarwal, Director & Vice President – Human Resources and Outreach, Jaipur Engineering College and Research Campus (JECRC) Foundation, told Moneycontrol that this year a few companies had increased their package by as much as 40 percent, though some IT companies chose not to do so.

Four other recruiters and engineering college placement directors told Moneycontrol that top IT firms have not increased their salaries this year despite stiff competition from startups and multinationals, and the multiple job offers being handed out to students.

As a result, the joining rates of students in top IT services firms is taking a hit.

Fresher dropouts

Sachin Tikekar, President, KPIT Technologies, told Moneycontrol that fresher dropouts at the company have increased from the usual 5-10 percent to 15 percent. But it is not worry yet, he said.

Ram Sukumar, CEO & Co-founder, Indium Software, said that dropouts from top-tier colleges have increased. However, he did not quantify the same.

Two recruiters concurred. Sunil C, Head – specialised staffing, Teamlease Digital, said, “We are seeing a 7-8 percent increase in fresher dropouts. It was only at 2-3 percent earlier. Even these dropouts happened only because of genuine reasons such as family situations. We hardly saw dropouts for salary,” he said.

Supaul Chadha, Vice President – Experis India, a part of the staffing firm Manpower Group, said that fresher dropouts have increased to 7-10 percent from 2-5 percent earlier, as companies face an acute supply crunch.

TCS, Infosys, and HCL Tech did not respond to queries about increasing dropout rates, even as they are doubling up on fresher hiring this year, going by their commentary during earnings call last month.

Wipro, in a statement, said there is intense competition in the market and the company has doubled down on fresher hiring. But it did not reveal if fresher dropouts are increasing or if this is a concern.

A placement director at a top-tier engineering college, who did not wish to be named, given the relationship the institution  has with organisations, said that dropouts among students joining IT services companies have increased as more students, especially the top talent, get opportunities to work in multinationals and startups for a handsome package, which is rare in IT companies.

For instance, a marketing executive from a Chennai-based startup said that the company offers Rs 20-30 lakh to freshers in top campuses, whereas the IT services firm might offer only Rs 6-7 lakh to those with digital skills.

To be sure, none of the startups or multinationals can match the sheer volume of IT services companies, in terms of hiring. The top four IT companies in India will hire close to 1.6 lakh freshers in FY22 alone.  However, amid the intense competition and rising attrition, industry experts say it is high time the fresher salaries are revised.

Time to revise fresher salaries?

IT companies such as TCS, Infosys and Wipro offer differential salaries to freshers — a Rs 3.5 lakh basic salary and upwards of Rs 6-7 lakh to students with digital skills. This is the companies’ way of saying they are indeed matching the industry standards.

But TV Mohandas Pai, Chairman, Aarin Capital, and former CFO and HR head of Infosys, said, “These are excuses they are giving saying they are paying more. These hires only account for about 8-10 percent of total hires. They are hiring these students in 100, 200, or maybe 1000 in numbers.”

According to Pai, the answer lies in increasing salaries and not just for some of those hired. He asserted that salaries should be increased to Rs 5-5.5 lakh per annum and after a year of training, they should be increased to Rs 6.5 lakh.

“This would only cost the company 1-2 percent of revenue, which the company can offset through lower attrition and subcontractor costs, which are on a high right now,” he added.

Salary costs to acquire and retain talent have increased, and so have subcontracting costs. Attrition, which is over 20 percent for some companies, is expected to continue for the next 2-3 quarters.

Pai pointed out that unless companies bump up fresher salaries, the challenge of attrition would continue. “If you deprive people who are starting their career with you from decent compensation by taking advantage of the fact that supply is higher, the question of fairness and ethical standards comes into play,” he added.

However there are multiple interventions at play here to address these concerns.

Interventions at play

Wipro has put a three-year roadmap to ensure that campus hires’ salaries match industry rates. “This will lay out the potential compensation increase and career development opportunities during this period. We expect this plan to help improve the talent supply chain, reduce dependency on experienced hires and improve retention of campus hires. The plan will be shared with the candidate at the time of recruitment. Campus hires could potentially see their compensation more than double in three years and this will be applicable to all those joining Wipro Ltd. beginning this financial year,” the company said in a statement.

TCS’ Lakkad said, “As we go along, we have built-in something called incentives based on competency. There is basic compensation and if they (freshers) are ready by the time we want them or before that, they get certain incentives… This adds to their compensation. We are even thinking of increasing these incentives significantly.”

The situation is tougher for smaller companies, which find it challenging to attract top talent.

Venkatraman Narayanan, MD & CFO, Happiest Minds, said that the company has increased its fresher salary to Rs 5.5 lakh this year. This includes a base salary of Rs 4.25 lakh while the rest is a joining bonus. The company is also taking a look at the salaries of campus hires over a three-year period, so that they are brought to the market average.

Sukumar, of Indium Software, who was cited earlier, concurred that competition is stiff and for companies like his  it is harder to find quality talent. The company, like others, is on a hiring spree. The 2,000-member Indium Software is looking to add 800 people in the next 12 months, of which 40 percent will be freshers.

“Competition is high even in campuses,” Sukumar told Moneycontrol. With dropouts increasing for hires from tier-1 colleges, the company is looking at hiring from tier-2 and tier-3 colleges, where retention is much better. “These are the colleges that do not see much demand. We are working closely with them to hire top students from there,” he added.

“Within a year of hiring them, or even six months, the top performers will be quickly brought to market salaries,” he added. This is to ensure that the attrition can be controlled.

Companies are also hiring more non-engineering graduates. Larsen & Toubro Infotech CEO Sanjay Jalona and Mindtree CEO Debashis Chatterjee recently said that they are looking to hire more non-engineering graduates like BCA (Bachelors in Computer Applications) students and put them through training. Though this is not new, the scale of this hiring is also increasing.