A Measured Step

- Som Sekhar Bhattacharyya, ​​​​​​​sumi Jha, ​​​​​​​kartik Girish Vyas

Traditionally, Indian IT firms have been dependent on the US market for revenue generation. But they have been facing challenges since 2017 because of the US government’s protectionist stance and the advent of automation technologies. In a knee-jerk response to this situation, these companies decided to withhold salary hike for employees. However, most fail to analyze the implications of such measures in the overall context of strategic human resource perspective.

Human resources are one of the key components of any organization. In Indian IT firms, compensation is the key determinant of an organization’s ability to attract and retain talent. At a macro level, compensation packages are determined by market forces, but at the micro level it may vary because of the difference in increments given to employees performing similar tasks.

To understand the dynamics of small-sized Indian IT firms and the compensation policies, one should keep in mind three dimensions: business scenario, employee talent, and job vacancy.

interplay of three dimensions

Business scenario could be favorable or challenging. Since the 1990s, the Indian IT industry has been registering 15 to 25% YoY growth. From an organizational context, if the YoY growth rate is around 24%, the revenue, and along with it the strength of human resources, doubles in three years. This kind of growth rate can promote employees to the next level every three years even if there is no attrition. This is the most favorable situation for IT firms. When the growth rate becomes 18%, it takes four years to double the revenue and employee strength. As long as growth rates are above 15%, the scenario can be termed as favorable; companies can then provide salary hikes of 10% without impacting the margins significantly. The situation starts to become challenging when the growth rates fall to single digits.