IT firms again face high attrition rates

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High attrition rates have come back to haunt the IT industry. While Infosys reported a whopping 19.5 per cent attrition rate for Q1, IT bellwether TCS (including BPO) reported about 12 per cent, its highest in the last eight quarters. Industry players give a variety of reasons, averring Q1 traditionally brings high attrition and that the increased rates denote revival in growth.

Attrition rate denotes the percentage of employees that leave an organisation during a particular quarter. IT companies do not follow a standard procedure to report attrition. While a few report the rate for the last 12 months (LTM), others state quarterly numbers. Some combine the figures for IT services and BPO, others report them separately. Most companies report only voluntary attrition, excluding retrenchment.

“Attrition rates going up is a sign of growth coming back in the industry,” said BVR Mohan Reddy, vice chairman of Nasscom. “We are also seeing an increase in the number of lateral hires.” He says IT companies want to reduce bench strength, which may go down 1-2 per cent this year. Experienced employees can be hired on demand and deployed to projects with minimum training.

Also, companies will have to hire only from each other and this will obviously result in higher attrition rates, says Nasscom’s Reddy.

But individual companies have different reasons for the higher rate. In the case of Infosys, the company saw an exodus of talent, including that of senior management, last year.

Infosys chairman emeritus NR Narayana Murthy admitted that the biggest mistake it committed over the last decade was in the area of employee compensation. Outsiders were hired at higher salaries, overlooking internal talent. This led to a lot of discontentment and attrition rates escalated like never before.

Infy management has now mandated that about 80 per cent of the promotions should go to existing staff based on competence.

Ankita Somani, analyst at MSFL Research, said: “We believe unless Infosys reins in high attrition rate, the recent measures undertaken by the company to improve employee productivity would not

fructify.

“To keep attrition in check, the firm has given wage hikes of six-seven per cent for offshore employees and one-two per cent for onsite employees during the first quarter of FY15. Also, it has restructured the overall compensation structure to make it more predictable. These steps are expected to bring attrition rate down but the results of this are expected to be visible after a couple of quarters.”

On the other hand, TCS management does not seem worried about the increased attrition rate.

Its chief executive officer and managing director N Chandrasekaran said that the numbers are “pretty much on the trend” as the first quarter is traditionally prone to higher employee exits. People opting for higher studies would quit in the first quarter to join colleges in the first quarter, the admission season in the US.

The other major companies – including Wipro, HCL Tech and Tech Mahindra – have also reported at least one per cent increase in attrition rate compared to the corresponding quarter last year.

While HCL Tech’s rate on LTM basis increased to 16.9 per cent from 14.9 per cent, Tech Mahindra reported 16 per cent, up from 15 per cent. Wipro splits its attrition rates for IT and BPO, and then further into divides annualised and quarterly rates. The company’s IT services’ annualised voluntary attrition rate increased from 13.2 per cent to 16.1 per cent.

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