TCS cuts variable pay at senior levels for July-September quarter on tepid demand

Apart from work from office attendance, variable payout for TCS also depends on internal business unit-wise performances

Many Tata Consultancy Services (TCS) employees have seen their variable pay being slashed for the July-September quarter despite adhering to the company's work from office norms as business continues to see demand uncertainty, people privy to the development told Moneycontrol.

According to sources, while some employees got only about 20-40 percent of their quarterly variable pay out, others even got zero percent. This, compared to the 70 percent pay out given in the previous quarter.

Apart from compulsory work from office attendance, variable payout for TCS also depends on internal business unit-wise performances. This development sheds light on the ongoing challenging demand scenario and macroeconomic uncertainties that drove the lower single-digit growth reported by the Tier- I IT services companies as of Q2.

In Q2FY25, TCS reported a 5.5 percent revenue growth year-on-year in constant currency (CC) terms to Rs 64,259 crore. Net profit came in at Rs 11,909 crore.

Responding to Moneycontrol’s detailed queries, a TCS Spokesperson said, “For Q2FY25 we have paid out 100% QVA (Quarterly Variable Allowance) to junior grades across the company. For all other grades, the QVA depends on their unit’s business performance. This is in line with our standard practice across quarters."

In April 2024, TCS had updated its attendance policy expecting minimum 85 percent attendance of employees in office for them to receive full quarterly variable pay. Also, consistent non-compliance of this could lead to disciplinary actions being taken.

Employees with 75-85 percent work from office attendance will receive 75 percent of their variable pay while those with 60-75 percent attendance will only get 50 percent of their variable pay. And those with less than 60 percent attendance won’t be eligible for the quarterly bonus.

Following this, in July, TCS Chief HR Officer (CHRO) Milind Lakkad said that nearly 70 percent of employees had returned to office and that this was a temporary measure.

The country’s largest software exporter had previously shared that almost 40 percent of its current workforce had joined the company during the Covid pandemic years and hadn’t worked from the office ever.

Demand recovery

Despite a weak performance in Q2 - missing out on street estimates on profit and margins, TCS anticipates an improvement in by Q4 FY25 as Q3 is traditionally a weak quarter marked by furloughs.

"We expect the headwinds to stabilise in Q3 and return to growth in Q4," the TCS management told analysts in its post-earnings conference call on October 10.

Typically for IT companies' Q3 is also marked by furloughs, wherein clients in regions like the US and Europe refrain from compensating outsourced employees from Indian IT firms for specific days when their operations are suspended, typically during Christmas and New Year.

On being asked about the expansion of deal cycles, the IT behemoth had clarified that the time to close the deal has been extended. "It's not the tenure of the deal, it's the time to close the deal that has expanded between Q1 and Q2."