HEFTY PAY PACKETS A THREAT TO INDIAN IT COS' MARGINS

New Delhi
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Leave alone the adverse effects of economic slowdown, the Indian IT industry fears that fattening pay packets for employees could cut down their profit margins.

Country's two largest software exporters, Infosys Technologies and Wipro Technologies, anticipate wage pressures might not only slash their margins but also prevent them from maintaining their competitive advantage.

"Wages in India are increasing at a faster rate than in the United States, which could result in increased costs for companies seeking to employ technology professionals in India, particularly project managers and other mid-level professionals," Infosys said in its recent annual filing to American market regulator Securities and Exchange Commission (SEC).

In order to retain and recruit talent, companies especially in the IT sector are doling out hefty pay packets. The trend is all the more visible for middle level professionals and project managers.

A recent survey by global management consultancy firm HayGroup said salaries in India are forecast to rise by 14.4 per cent during 2008.

Infosys also noted that it might need to raise employee compensation more rapidly than in the past to compete with other employers.

Wipro has also cited wage pressure as a business risk in its latest annual filing to the SEC.

Moreover, lower wage costs in India are considered as one of the important competitive advantages by the IT firms.

"Our wage costs in India have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, and this had been one of our competitive advantages.

"However, wage increases in India may prevent us from sustaining this competitive advantage and may negatively affect our profit margins," Wipro said in its filing.

Industry analysts believe that rising salaries present a challenging scenario and that it could adversely affect the prospects of IT firms in the long term.

To stem attrition rates in the middle and senior levels, Infosys has a long-term retention bonus policy in place.

According to the policy, certain senior executives and employees are entitled to a yearly cash bonus on their continued employment with the company. The bonus is based on seniority, their role and performance in the firm.