[saket77]

I am not an internal to the sector but it would be interesting to know a comparison between someone who bagged 30-35LPA as starting packages and someone who got a more in line-5-6LPA for a start. How do they both compare some 12-15 years down the line?

Actually I am amazed that how can an employer be so confident about a fresher's skill who don't have industry experience or even real world professional training. Or is it more of a marketing ploy for a company to boast their paymaster capabilities against their competition?

[AltoLXI]

Originally Posted by Acharya

Offer was given after 3 months of internship, during which she was supposed to create complex financial compliance reports using proprietary coding language (similar to python)

Are you talking about the quants? If so, then it is a different game altogether. Hardly a few, even from top IITs, can make it to this field.

Coming to internship, some folks I know from IITs are getting 16L - 20L in MNCs from US.

[Acharya]

Looking at top 20 Engg colleges in India, average salaries are upwards of 15 LPA.
With top 5% students getting above 50 LPA and next 25% getting 25-50 LPA.

Fifteen years ago, there were not even 1% graduates from same colleges, who would earn 50LPA in India. High starting salaries are bound to become a norm for good quality talent, this change is going to hit us sooner than later.

Even considering cost of living in a city like Bangalore, a person would need at least 60-80k per month in hand to live independently & respectfully, which means CTC of ~15 LPA.

Starting salary of 15LPA should be a norm in metros, rather than exception.

[DigitalOne]

Originally Posted by V.Narayan

In IT the cost per employee is so high in both absolute terms and as a function of revenues that when orders are lost cutting employees & senior management pay is one major way to save the company from sinking.

I humbly disagree. The net operating margin for the WITCH companies are in the range of 18% - 23%. None of these companies are "sinking". Even HCL whose results were deemed to be 'disappointing' by the stock market last week, have given a guidance of 6-8% profit growth for this year.

The problem is the endless expectations of shareholders/investors that have been set in the last couple of decades of double digit growth and profit margins of > 25%. IT service companies need to come out of this share price expectation management and start working like any other industry. Why can't they/investors be satisfied with a 8-10% margin? The share price will take a massive beating, but the employees will be happier, no?

[Samurai]

Originally Posted by Acharya

Starting salary of 15LPA should be a norm in metros, rather than exception.

Let's crunch some numbers on this. TCS has over 6L employees, let's assume 5L are IT workers, rest being in support function. Let's assume TCS pays everyone the fresher salary you propose. Yes, the majority of IT workers are not freshers even in TCS. Still, let's see the wage bill.

TCS revenue = 225000 crore.
Actual annual wage bill = 120,000 crores
Annual Wage bill at 15L flat = 5L x 15L = 75000 crores

So, if TCS pays everyone the fresher salary of 15L, it is already 33% of their revenue. Now start assigning higher salaries to seniors, and soon the wage bill becomes unsustainable. Don't forget other costs like administrative, rents, marketing, sales, etc.

[JediKnight]

Originally Posted by Acharya

Looking at top 20 Engg colleges in India, average salaries are upwards of 15 LPA.
With top 5% students getting above 50 LPA and next 25% getting 25-50 LPA.

Fifteen years ago, there were not even 1% graduates from same colleges, who would earn 50LPA in India. High starting salaries are bound to become a norm for good quality talent, this change is going to hit us sooner than later.

Even considering cost of living in a city like Bangalore, a person would need at least 60-80k per month in hand to live independently & respectfully, which means CTC of ~15 LPA.

Starting salary of 15LPA should be a norm in metros, rather than exception.

50% 50LPA salaries are usually RSU/ESOP etc which usually vest over 4 Years and around 10-15% is variable pay. So typically salary would be like 25 LPA + 25/4 ( annual stock value ) + 5 * 0.8 = 25 + +6.25 + 4 ~ 35L.
So 50 LPA package is more like 35 actually. (which is quite good actually) There is tendency of colleges/parents to overstate salary packages

If you wondering why i multiplied 0.8 to 5. That is generally what a good performing candidate would get. Value can be 0 if company is not doing well or more than 1 for extreme cases which are very rare.

Many US companies have the "attract and trap" or the "golden handcuff" strategy. Give candidates so much money so that he/she stays for next 3-4 years. They use US listed stocks very effectively for that. It is almost free money for them but very valuable to local candidates.

Eventually however the candidate will get "normalized" into a target salary band. These companies have very accurate salary information for a particular industry. And they bench mark their salaries accordingly. If a fresher got stellar starting salary he/she will get smaller raises and will eventually be brought in par with the general crowd for that particular company/industry. This can only change if the candidate performs extremely well on the job and gets promoted out of the way.

[avira_tk]

Originally Posted by Acharya

Looking at top 20 Engg colleges in India, average salaries are upwards of 15 LPA.
With top 5% students getting above 50 LPA and next 25% getting 25-50 LPA.

Fifteen years ago, there were not even 1% graduates from same colleges, who would earn 50LPA in India. High starting salaries are bound to become a norm for good quality talent, this change is going to hit us sooner than later.

Even considering cost of living in a city like Bangalore, a person would need at least 60-80k per month in hand to live independently & respectfully, which means CTC of ~15 LPA.

Starting salary of 15LPA should be a norm in metros, rather than exception.

The top 20 are not representative of the average, high salaries for top talent is the norm, or, should be, how is it going to hit us? Who is the us in this context?

The fresher cohort that makes 3L a year is happy to get a job, if you're talented and shift employers, that'll be around 20L in about 6 years. Many graduates 15 years ago didn't make 50L per annum, while that is true, today it's because of inflation. The smart with the few to flight employers did have packages of around 20, a huge sum in those days, you could easily buy an apartment and pay the emi without a sweat.

Your niece is an example of what the very best are capable of doing by themselves. The package is a bargain for the recruiter, a fresher who hits the ground running, as close as it gets to a unicorn in real life.

[Acharya]

So, are we saying that top talent faces the max heat of attrition so lets raise the salaries for them from 20L to 50L in span of 15 years. However, in the same timeframe, average Joe should continue to earn 3.5L starting salary.

When the cooks and maids in Blr have started to earn 3.5 to 5LPA, it's high time entry level IT salaries are brought to reasonable levels.
I suspect, this is one of the key contributing factor towards ~20% EBITA margins that most service companies are reporting.
Globally, IT majors have 7-8% lower margins than Indian counter parts.

[DigitalOne]

Originally Posted by Acharya

I suspect, this is one of the key contributing factor towards ~20% EBITA margins that most service companies are reporting.
Globally, IT majors have 7-8% lower margins than Indian counter parts.

You are right. TCS said the below during their Q1 results announcement last week:

TCS rolls out salary hike, takes 200-bps impact on operating margin
While Infosys has reportedly deferred a pay hike, India's largest software services exporter Tata Consultancy Services (TCS) has gone ahead with a salary hike to take 200-bps hit on its operating margin.

"We have gone ahead and rolled out our annual salary increase with effect from April 1st. Our operating margin of 23.2% reflects the 200-bps impact of this hike, offset through improved efficiencies," TCS CFO Samir Seksaria said.

The WITCH companies have fundamentally formed a cabal to keep employee salaries low, keep margins at ~20% and keep investors/shareholders happy. The pressure to keep performing in the stock market with a ~20% margin has distorted their thinking in favour of shareholders to the detriment of employees.

[V.Narayan]

Originally Posted by DigitalOne

I humbly disagree. The net operating margin for the WITCH companies are in the range of 18% - 23%. None of these companies are "sinking". Even HCL whose results were deemed to be 'disappointing' by the stock market last week, have given a guidance of 6-8% profit growth for this year.

The problem is the endless expectations of shareholders/investors that have been set in the last couple of decades of double digit growth and profit margins of > 25%.

Even more humbly, I also disagree. You & other may not like what I write but permit me to say it nevertheless.

I agree the large IT companies are no saints. Their HR departments could do with a great deal more professionalism and courtesy. Similarly large swathes of the employee population are also no saints. Their unprofessional practices too have been documented at length on this and similar threads. Employees tend to view themselves as the helpless victim. Employers scarcely view employees as helpless what with 1/3rd jumping jobs each year, forever negotiating up wages, ghosting and with WFH running two jobs in parallel.

The shareholders have their expectations, some unreasonable & rigid and by the way so do the employees. Having dealt with both I believe shareholders are the more reasonable of the two and often a darn sight more mature. Sorry if that hurts.

Why can't they/investors be satisfied with a 8-10% margin? The share price will take a massive beating, but the employees will be happier, no?

Hmmmm! - 8% to 10% return? why can't these greedy shareholders be happy with that. Well in that case all of us beleaguered employers would rather invest in a hybrid debt-equity fund, collect a hassle free 8% to 10% and not have the headache of building and running a business. The employee can then cheerfully remain unemployed.

IT service companies need to come out of this share price expectation management and start working like any other industry.

Do let us know which these industries are which are free of share price expectations, love to over pay their employees and are happy with an 8% return after the bone crushing effort of building and managing a business. Why stop at over paying employees - why not over pay suppliers of raw materials, the transport guy etc. At the end of the day it has to be a balance of forces.

A small segment of untrained beginners get Rs 3.00 lakhs p.a. in some companies and that is being tom tom-ed as a universal number covering millions which is incorrect by a country mile and folks keep getting lathered about it. I wrote in an earlier post that the instability amongst India's IT employees is driving work out of India to Africa - that BTW is also a balance of forces!.

My post below for reference.

Originally Posted by V.Narayan

A very interesting point I learnt yesterday. An old friend, the MD of a large IT services company came home yesterday ....... to meet me as I am convalescing. Our conversation steered to AI & ML. He mentioned they are shutting down their centre in location X.
So, I asked him why. His reply was, " look V____, I'm under pressure for costs, profits, competition from country Y for this particular product and that particular centre was our most troublesome in returning back to even a hybrid model. Country Y is stealing business at literally one-third the price using AI as their starting game 15 months ago. He continued, "so we decided to simply AI-ize it, shut it down and save ourselves the harassment of recalcitrant employees who in any case change jobs every other year". He continued, "either I catch up with competition that has emerged from almost the thin air or get ready to lose these two clients altogether and with that all the high end work we do too at other centres."

Frankly, I didn't even know country Y was known for IT but it is an upcomng star in an upcoming continent - go figure :-) . From the horse's mouth. And this is someone whom many of our members work for!!!

[SmartCat]

I'm not a software engineer - I'm butting in only because you gents have started talking about stocks.
My views are purely from business point of view:

Originally Posted by Acharya

Globally, IT majors have 7-8% lower margins than Indian counter parts.

Global IT majors have lower sales growth too, and there is a link between margins and sales growth.

a) Indian IT majors can take a lot more risk when it comes to investments in new/upcoming tech (Eg: AI, big data, cloud and whatever buzz words you software folks talk about).

b) Indian IT majors (who have better control over costs) can aggressively pitch on getting new projects, resulting in better sales growth

Now (a) and (b) together results in Indian IT majors increasing headcount at a faster pace than global IT majors. So from "what's good for the nation" point of view, Indian IT majors adding 250,000 people every year is better than just adding 50,000 people.

Originally Posted by DigitalOne

I humbly disagree. The net operating margin for the WITCH companies are in the range of 18% - 23%. None of these companies are "sinking". Why can't they/investors be satisfied with a 8-10% margin? The share price will take a massive beating, but the employees will be happier, no?

Keeping a wider operating margin allows Indian IT companies to weather storms like the one in 2008. More than shareholder expectations, I think Indian IT companies are petrified of announcing layoffs, because of how it would affect their brand. Meanwhile, Accenture has no trouble announcing 20,000 layoffs in a quarter.

After all, employee costs are like 90% of an IT company's overall expenditure. With 10% operating margin, any drop in topline can quickly turn profitable year into losses - because they cannot fire people nor can they lower the salaries. For a typical automobile company, employee costs are like 3 to 5% of overall expenses, while raw material costs are 70%. In a major downturn, they can simply stop procuring raw materials and that will keep the expenses in check.

That's why an automobile company can survive at 10% operating margin, but not an IT company. Unless they are ready to fire as many employees as needed. Global IT firms have no qualms about this. If Indian employees want higher salaries (at the expense of operating margins), they have to accept lower job security in return. Much lower than what is currently the scene right now.

[sreerknair]

Originally Posted by saket77

I am not an internal to the sector but it would be interesting to know a comparison between someone who bagged 30-35LPA as starting packages and someone who got a more in line-5-6LPA for a start. How do they both compare some 12-15 years down the line?

Actually I am amazed that how can an employer be so confident about a fresher's skill who don't have industry experience or even real world professional training. Or is it more of a marketing ploy for a company to boast their paymaster capabilities against their competition?

It averages out over one's carrier path within the same industry. If both are of same caliber and stay with in same Industry and make similar attempt at career progression then over a 30+ year career term both of them will earn similar. But reality is not this straight forward. Caliber differs, Risk appetite differs, Opportunity presented, Grabbed, and able to Grab (Luck) differs, Life Objectives differ, Circumstances differ, Financial decisions differ, Health and Family differ !

Regarding these high starting salaries - that too average out over a period of time. To put that in perspective, there are only 1.3L people in India who reported more than 1 Cr taxable income last year. And in 2019, only 2200 salaried people reported more than 1 Cr income. In most MNCs, there are not more than 300 people earning more than 1 Cr salaries. So either they reach the ceiling and burn out, or move out of India to earn in $ or start something on their own.

[DigitalOne]

Originally Posted by V.Narayan

The shareholders have their expectations, some unreasonable & rigid and by the way so do the employees. Having dealt with both I believe shareholders are the more reasonable of the two and often a darn sight more mature. Sorry if that hurts.

Hmmmm! - 8% to 10% return? why can't these greedy shareholders be happy with that. Well in that case all of us beleaguered employers would rather invest in a hybrid debt-equity fund, collect a hassle free 8% to 10% and not have the headache of building and running a business. The employee can then cheerfully remain unemployed.

Perhaps I should qualify who I meant as investors/shareholders and also distinguish them from upper management (CxOs level executives). Apart from the founders who may currently own a minimal % of shares, majority of the shares are held by FIIs/DIIs/Pension companies (e.g. Infosys has promoter holding of 13%). Promoters/founders build the companies whereas the secondary market investors are clicking the mouse. Or not even that. When LTIMindtree replaced HDFC as a component of the Nifty 50 index last week, lakhs of investors worldwide became (indirect) shareholders of LTIMindtree via index funds. These amorphous investors are only concerned with the operating margins and capital gains from share price increases. A CFO who says that they will pay their employees at the cost of a few basis points reduction in operating profit will be out of a job before the press conference ends.

And then there are the Activist Investors.

An activist shareholder attempts to gain control of a company in order to pressure its management into making changes or replace its management outright.

American billionaire investor Carl Icahn is a well-known name among activist shareholders. He is known for buying large amounts of a company's stock and then pressuring the company to make significant changes in order to increase the stock's value.

Activist investors have been behind significant layoffs in the US. Examples:

• Activist Investors Slam Google in Open Letter Demanding Headcount Reductions

• Salesforce upheaval likely as Elliott Management moves in....activist investor funds have targeted the vendor for cuts that could slow technology R&D and investment.

I don't think the scourge of activist investors has hit our shores yet, but it is only a matter of time.

Were there any questions to TCS management regarding the deferment of lateral hiring during the Q1 results announcement? I could not find any.

And that's where my concern is. The bottom line (pun intended) is there is a huge class of secondary market investors, either direct or indirect (via MFs/pension plans etc), whose interests are completely antithetical to that of the employees (including middle management). I would like to believe that the top management (CxO levels) have their heart in their right places and do think about employee welfare but they are swimming against the tide.

AI and automation would make this worse. As you yourself have quoted from the MD of a IT service company, it is easy to give an excuse of 'recalcitrant' employees and replace them with AI. Did your friend tell what % of employees were recalcitrant towards hybrid rules? What about the employees who conformed to the rules but had to still suffer the center shutting down and probably had to move cities or lose jobs?

For the misdemeanors (ghosting/job-hopping/moonlighting etc) of some, why do the employees who are working loyally suffer low pay, low hikes and such? Where is the fairness in punishing X for the transgressions done by Y? Can't the companies share data with each other on the violating employees and not give this as a lazy excuse to harass all employees (again including middle management)?

[condor]

Originally Posted by DigitalOne

Were there any questions to TCS management regarding the deferment of lateral hiring during the Q1 results announcement? I could not find any.

From what I understand, Lateral hiring is internal hiring through movement of resources from one function to another. I dont see why TCS even had to mention this, or if they are covering up something. And for internal movements, why should anyone complain ?

[DigitalOne]

Originally Posted by condor

From what I understand, Lateral hiring is internal hiring through movement of resources from one function to another. I dont see why TCS even had to mention this, or if they are covering up something. And for internal movements, why should anyone complain ?

They didn't have to mention this or defend any decisions nor am I imputing any cover up. All I want to highlight is that global financial investors and the mainstream business media, have different expectations of a company which don't align with employee expectations.