Tata Consultancy Services (TCS), India’s largest private sector employer, has slashed workers’ bonuses by a fifth in an effort to reassert its flagging cost advantages in IT outsourcing.

TCS’s 108,000 workers were told of the unprecedented blanket cut to their incentive scheme this week after India’s largest software exporter missed internal third-quarter margin targets. The company said the rupee’s strength – the currency has gained about 12 per cent against the dollar in the past year – had forced its hand.

The bonuses, or variable pay, account for about 30 per cent of the average TCS worker’s salary. The scheme was introduced in 2000 after TCS opted to eschew Silicon Valley-style awards of stock options. Payouts are calculated on a quarterly basis and weigh corporate and personal performance.

The move to cap costs was also presented as part of a plan to move more jobs – from call centre to high-end coding jobs – to the sub-continent from the West.

Phiroz Vandrevala, head of corporate affairs for TCS, said: “We plan to take more and more work to India. That remains the biggest lever we have to ease costs.”

The UK, where clients include the NHS, British Airways and Southern Water, is TCS’s second-largest market after the US and a key target for expansion. The company, which employs 75,000 people in India, has 22,000 job offers outstanding and plans to add another 13,000 to its headcount by the end of the year.

Offshoring and the associated “labour arbitrage” remain prickly terms, however. Azim Premji, the chairman of Wipro, another Indian IT giant, deflected charges of “stealing” Western jobs by asserting that his company was filling a skills deficit. “What is of concern is how serious a shortage of technical talent is building up in the Western world,” he said.

News of the TCS bonus cuts will come as a shock to India’s 700,000 IT employees, who have grown used to double-digit levels of wage price inflation and standards of living undreamt of by their parents. However, recent studies have revealed strains on the IT sector. A report by Nasscom, the IT lobby group, targeted a fivefold increase in industry revenues by 2012, to $50 billion, but high-lighted several hurdles including rising wages, looming talent shortages and poor infrastructure, especially in India’s smaller cities.

In a sector where wage rises of up to 40 per cent for poached workers have become common, Mr Vandrevala said the TCS cuts were an attempt to rein in expectations. Ma Foi Consultants, an IT recruitment specialist, said it had seen evidence of similarly “cautious approaches” among other companies amid concerns that Indian out-sourcers may fail to meet the explosive profits growth of previous years.

The IT crowd

700,000 workers employed in Indian IT outsourcing sector

22,000 jobs currently being offered to Indian IT workers by TCS

$11bn estimated value of Indian IT industry last year

$50bn targeted value for 2012

Source: Nasscom, Times database

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