Infosys Pay Hikes

With most Indian IT companies announcing wage hikes, it seems quite clear that the moribund economy has impacted pay hikes at most companies. It turns out that the various HR consultancies were off target by around 2% in their general predictions. Infosys has announced a 8% avergage hike this year coming on the back of a 6% – 8% hike in Oct’12. Wipro has said it’s paying up it’s employees by 6% – 8% this year; reports about TCS put it’s hike in the wide 5% – 10% band. Mid tier Mindtree may come in at 6% (same as last year?). Cognizant seems to have deffered hikes to July so that all employees across rank and file get wage hikes at the same time. I also read somewhere that IBM is not doling out any hikes this year! So the scenario is quite bleak and suddenly IT does not seem to be the hot sector that it was made out to be. Unless of course if you happen to be an IT worker seconded overseas. The recent weakness of the INR has effectively increased the value of such folks’ USD holdings by approximately a tenth!

Given this theme, a good part of my last weekend was spent in reading up assorted news stories about wage hikes reported in Indian media. On a lark, I also tried to collect historical mentions of wage hikes at Infosys (long considered by many to be the darling of the Indian IT scene) and since I try to correlate anything with everything, I tried to see how the decisions by the top brass at Infosys regarding this extermely crucial element of their cost have stacked up against their company’s share price over the past few years. As mentioned earlier, the data for the chart below has been collected from old media reports (all of them online) and as hard as I tried, I could not get the average hikes at Infosys for FY’04 and FY’05. If you know, please let me know. So, with wage hike data from FY’06 onwards, the chart below superimposes the salary hikes at Infosys over it’s share price. The share price has obviously been adjusted for the two very generous bonus issues on the stock, but it has not been adjusted for the various dividend payouts on the stock. I don’t know if you can see it, but to my “force fit a pattern where none exists” eye, I can discern a weak correlation between average hikes and the share price! And I can also see a distict lag effect between the time when the insiders (i.e. employees) feel the pinch vs. when the market drops the price!

Infy salaries trend

Obama Speak

The US President is going around asking his fellow countrymen to produce more graduates and compete with the likes of India and China. These are good points to raise but then when this is accompanied by curbs on granting visas it begins to sound like rhetoric. All under the guise of protecting US borders! The border security bill will hike visa fees to $2,000 per applicant for companies that have fewer than 50% of its workforce as US citizens. Thats a cool $200 million bill for Indian software companies that rely heavily on “body shopping”. The standard line of the Indian industry has been a lament on the lack of the totalisation pact between the two countries. India has to contribute towards social security for the workers that it sends to the US – and if they return back to India, there is no possibility of a refund. I would welcome to hear something from Dr. Manmohan Singh on the issue. He is his usual quiet self.

While India remains preoccupied with flash floods, Kashmir, honour killings and the Commonwealth Games tamasha, China picked up the gauntlet and responded well by making outsourcing completely tax free if delivered from 21 cities. The Chinese have made no bones about the fact that they want to end India’s dominance in the sector. Should India not make a counter move to steal some foundries away from China?

India’s earlier responses sound quite pathetic to me. If the US politicians are ushering their wards back to school and hoping and helping their middle class to retain their sources of income, whats wrong with it? Cribbing about it and making it sound as if some grave injustice is being done against it is mooching. How would India feel if people across its eastern border arrived in hordes and stole away jobs? Some factions cannot even tolerate intra country movement of labour.

The rhetoric in the US however is also missing its mark. Senator Charles Schumer has called Infosys a chop shop. Its easy for the sound bytes to morph into an India/China hate undercurrent (if one does not exist already). Lou Dobbs, a popular media anchor, for instance has written a book on outsourcing and devotes much of his website to the phenomenon and how the American middle class is being killed. Is it? Don’t think so. Maybe going through a very tough phase. An important counterpoint to note is the indirect benefit that this can yield to the US.

It would be good for the US to note that the Indian middle class is gravitating towards more and more consumerism. People are seeing their incomes rise and are swiping their credit cards, buying second houses, ipods, etc. gleefully. This is allowing banks like BoA, Citibank etc to set up their shops in India. While such benefits selectively accrue to the Dells, Microsofts and BoAs of the world, the American middle class can certainly benefit. President Obama should also consider exhorting his masses to match imports (of services from China and India) with American exports to these countries. The oriental appetite for consuming intelligently designed goods and services in the occident will only grow. Americans would do well to understand one basic trait of most Indian middle classes – they are afraid to take risks. Innovation is rarely seen. While hordes of software junkies pound away at maintenance and basic software jobs, there is hardly any technological breakthroughs that emerge from this populous nation. The US has always thrived by managing risk and employing innovation which have set up a very strong financial acceptance to see capital freely flowing to fund ventures that are risky. Indians generally take the easy way out – outsourcing is one of them.

But these shifts and changes, as significant as they can be, happen slowly and the threat of the current American middle class losing its plot somewhere is indeed very real. And such Obama speak will found many takers and therefore votes. Whether the White House politicians actually act in earnest to plug the leak (which in my opinion they should not blindly do) is a different matter. Donations from many top industry groups may be funding the election expenses of these law makers.

In my opinion, its futile for the US (as a nation and culture) to fight outsourcing. Its perfectly logical and sane for the US society to agitate and therefore equally logical for the politicians to flog this sentiment for election victories. The US should focus on earning export dollars (USD should depreciate as years roll by) by tapping into the growing prosperity in China and India. India and China, on the other hand, should open up their economies further, slicing and selling off non-strategic assets to the highest bidders and generating more wealth in the process. Its a great lifetime to spend in the Indian and Chinese capital markets of today.

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