Kamal Ghorui
BENGALURU:The good old days of predictable April hike cycles are passe for IT firms. What was once a dependable hike cycle has given way to single-digit increases and a wait-and-watch approach — often leaving employees in the dark about when, or even if, raises will come.For many IT companies, this reflects a familiar playbook of cost management, now applied with greater intensity. Salary hikes are being deferred or scattered through the year, while people costs are increasingly used as a routine lever to protect profitability. Increments are no longer uniform or time-bound; instead, they are calibrated to business conditions. The impact varies across the workforce. Junior employees tend to be relatively protected, receiving more modest adjustments. In contrast, mid-level and senior executives are seeing far more sporadic increases, closely tied to performance, margins and demand visibility.Compensation is becoming more conditional. Recent actions by companies underscore this shift. Wipro, for instance, rolled out salary hikes in March this year after a gap of nearly 18 months. The previous round came in Sept 2024, barely nine months after the prior merit cycle. For the current fiscal, barring TCS, Infosys, Wipro and HCLTech have yet to clearly spell out the timing of salary hikes, reinforcing the growing uncertainty around pay cycles. At the heart of this transition is a deeper structural question: how companies deploy savings generated from workforce optimisation. The risk is that firms rely too heavily on cost-cutting — deferring hikes, tightening performance filters and reducing headcount — without reinvesting enough into building an AI-ready operating model.Increasingly, the shift is from performance management to margin management, with employee costs treated as a short-term lever. This change is also being driven by the normalisation of layoffs as a management tool. Once considered a last resort, layoffs are now used more systematically to manage costs. Tighter performance evaluations and operational efficiencies are reinforcing this approach, creating a more stringent environment for employees.From an industry standpoint, Zensar CEO Manish Tandon attributes the trend to margin pressures and persistent uncertainty. “Salary hikes are permanent commitments, while demand conditions remain dynamic. Companies want to retain flexibility, and that’s why many are deferring or staggering increases over time.” He, however, said that Zensar rolled out salary hikes on time. Phil Fersht, CEO of HFS Research, draws a distinction between reactive and strategic responses. In his view, many firms are using margin pressure as a short-term lever rather than fundamentally redesigning their operating models for an AI-native world. “The real story is which firms are investing in the productivity gains AI promises, rather than just pocketing the headcount savings. That’s the accountability question enterprises and investors should be asking right now.”Examples like Cognizant’s Project Leap highlight this tension. The programme, aimed at improving margins, is expected to cost $230 million to $320 million, including substantial severance expenses that could affect thousands of roles. As AI-driven deflation lowers the cost of work, these trends are only accelerating. Companies are leaning more on productivity pressures and workforce optimisation to sustain margins. The result is a clear reset: compensation growth is becoming less predictable, less uniform and more tightly aligned with business priorities.Ray Wang, CEO of Constellation Research, points to broader margin compression across industries, with investors increasingly focused on revenue per employee. AI-driven financial simulations now allow companies to adjust cost structures with far greater frequency. Meanwhile, Peter Bendor-Samuel, chairman of Everest Group, expects these pressures to intensify over the next two to four years, driving deeper changes in operating models, compensation structures and workforce composition.
