Infosys Battles Worker Exodus Amid Top-Level Exits, Lower Wage Hikes

Infosys Ltd, once a bellwether for India's $100 billion-plus or Rs 600,000 crore ($1=Rs 60) IT outsourcing industry, is losing its cachet as the employer of choice for a generation of young IT workers, with staff leaving at an unprecedented pace as the Bangalore-based company struggles to regain ground lost to rivals.

Current and former Infosys staff interviewed by Reuters say morale has been dented by a series of senior management exits and worries about career prospects as the company's revenue and pay increases grow at a slower rate than at competitors such as Tata Consultancy Services Ltd (TCS).

Annual revenue in the year to end-March rose 24.2 per cent, lagging growth of 29.9 per cent at TCS.

The annualised rate of attrition at Infosys - effectively the number of staff leaving or retiring - was a record 18.7 per cent at end-March, 2.4 percentage points higher than a year earlier. That's close to a fifth of the company's workforce of more than 160,000. The attrition rate at market leader TCS was 11.3 per cent.

India's outsourcing services industry has relied for years on an army of engineering graduates to build so-called "bench strength", key to winning new contracts in an increasingly competitive industry. A strong "bench" signals to prospective clients that the firm can assign enough technicians to new projects. That signal is weaker when the number of staff quitting a company rises to uncomfortable levels. It also does little to attract new hires in the close-knit IT world.

"We were all excited when we joined Infy," said Sandeep Chaudhary, who last month quit Infosys after two years to go and work at a rival. "It has the best training and campus, but the company fails to utilise the training it gives its employees."

Taking Steps

Infosys announced an average 6-7 per cent pay rise last month for India-based staff, below the average 10 per cent raise at TCS. Third-ranked Wipro Ltd said it plans raises of 6-8 per cent from June.

Offering lower pay increases than its rivals could mean attrition levels at Infosys will rise further, UBS wrote in a client note last week. UBS cut its Infosys stock rating to 'Sell' from 'Buy'. "Such high levels of attrition could impact revenue acceleration," it added.

Infosys President Pravin Rao, a leading candidate to take over as CEO when S.D. Shibulal retires in January, acknowledged that attrition is higher than the 12-13 per cent rate the company is comfortable with.

Rao said Infosys is taking steps to stem the flow of those leaving: restoring regular April pay rises, having more frequent reviews for promotion, fast-tracking promotion for high achievers and increasing the fixed component in paychecks. In the past year, it has also held more 'town hall' meetings and 'jam sessions' where staff can speak informally with management.

"Yes, as a company we're seeing challenges on growth, and when growth does not happen opportunities get limited so attrition rises," Rao said in a phone interview.

He noted Infosys is hiring aggressively in sales, and expected attrition rates would return towards more acceptable levels in the coming quarters. "We're confident that once these changes start sinking in ... and growth comes back, attrition will come down," he said.

Some investors remain wary, however.

"If you lose too many people you have to redeploy them and clients don't like that. I'd say it's the biggest issue at the company right now," Bhavin Shah, CEO of investment bank Equirius Capital, said by phone from Ahmedabad, noting the high levels of attrition made him cautious on Infosys shares.

Training, Stock Options

Infosys was founded in 1981 when seven engineers, including N.R. Narayana Murthy, pooled $250 or Rs 15,000 ($1 = Rs 60) - mostly borrowed from their wives. The company's rapid growth kick-started the outsourcing movement in India and coined the term 'to be Bangalore-d'.

New company hires are put on a 23-week training programme regarded as among the best in the industry, and work in a Silicon Valley-style headquarters campus on sprawling grounds, with multi-cuisine food courts and state-of-the-art gymnasiums. Employee stock options helped make some of India's first salaried millionaires.

In recent years, however, Infosys has been criticised for not changing with the times, for being too conservative in chasing new business and, at times, for depending too much on Murthy, which some investors and analysts say has hobbled the development of new leadership.

A revamp, dubbed "Infosys 3.0", aimed to move the company up the value chain but fell short of expectations, prompting the return of Murthy from retirement last June to try to revive its fortunes. But his return, with his son Rohan as his executive assistant, saw at least nine senior executives depart amid a reshuffle of teams and titles. Some Infosys insiders say Murthy's return was aimed at grooming Rohan for the top job, prompting confusion and damaging morale.

"When senior management leaves in bunches, we begin to wonder if it's a sinking ship," said one Bangalore-based software consultant who has worked at Infosys for six years, but who didn't want to be named as company policy doesn't allow staff to speak to the media.

Most of the 18 current and former Infosys employees whom Reuters spoke to declined to be named.

Not everyone at Infosys wants out, and some said they were confident that Murthy's turnaround efforts would succeed. "These are hard times for Infy and a lot of employees are leaving. But I think these measures taken by Mr. Murthy are good," said another 6-year Infosys 'veteran', who plans to stay.

Headhunted

Others, however, are looking to move on, and four headhunting firms in Bangalore, India's IT hub, said they had seen a surge in resumes from Infosys staff over the past year.

They did not provide numbers for competitive reasons, but Shreya Bajaj, general manager at MapleCode, noted that most Infosys staff seeking jobs through the agency now would consider moving to a smaller company, something that would not have happened 18 months ago.

"For the last two years, there have been no significant wage hikes, there's saturation in career growth, the company's results have been below market expectations and there's internal strife, with senior guys leaving," she said. "Regular workers are feeling there's not much chance of growth in the company."

Future growth for India's large IT vendors is expected to be driven by infrastructure services and social media, applications (apps) and cloud computing (SMAC) - areas where analysts say Infosys lags rivals such as Cognizant Technology Solutions.

Murthy has said it would take a few years before Infosys gains significant ground in SMAC.

"Infosys is now beginning to focus on these segments, but in the next 2-3 years, we think Infosys' large base in the slower growing applications segments will remain a drag on revenue growth relative to peers," UBS wrote in its note.

Copyright: Thomson Reuters 2014