Bangalore: Big Pay Raises Are Back

Before the global slowdown, software engineers employed by Wipro (WIT), Infosys (INFY), and other Bangalore outsourcers were switching jobs as often as three times a year to boost their pay and scamper up the management ladder. Only the deep freeze of recession put a stop to the turnover. During the worst days of the financial crisis, these Indian companies were overstocked with thousands of excess workers, and raises were suspended. "It was very scary," says Girish Paranjpe, joint chief executive officer of Wipro's IT business. "No one was going anywhere."

Now the industry's revolving door is spinning furiously once more. Infosys, Tata Consultancy Services, and Wipro reported robust first-quarter results. And right on cue, job churn rates have shot upward, with Wipro losing 17 percent of its employees, Infosys 19 percent, and HCL Technologies 22 percent in the January-to-March period, according to IIFL Research, which analyzes Indian markets. "There's a huge hunt for talent," says Paranjpe.

Companies are using hefty raises to stave off the high job turnover. Infosys offered employees in India pay increases of 8 percent last October and then an additional 14 percent to 17 percent in April. Workers at other shops are getting fatter paychecks, too. "I got a 50 percent raise," says Vishal Shah, 25, a business analyst at the Pune (India) office of Cognizant (CTSH), the U.S. IT services company. Shah got his raise by landing a new assignment inside the company. "Even people who got promoted without a change in [career] track got as much as a 40 percent raise," he adds.

The major Western consulting companies are adding to the turnover at their Indian competitors, as IBM (IBM), Capgemini, and Accenture all plan to strengthen their operations in India. Accenture, for instance, is expected to have 50,000 employees in the country by the end of 2010. For someone looking to advance in the industry, says Vijay Gautam, an analyst in Mumbai with Jaypee Capital Services, "having a Western company on your résumé definitely helps."

The problem with high turnover is not just the higher costs that come with big pay raises. The average pay for an IT worker in India is still $20,000, compared with as much as $85,000 for his or her counterpart in the West.

The real challenge is maintaining the quality of the workforce, as companies lose veteran workers in droves while at the same time hiring tens of thousands of new employees. Supercharged turnover taxes the ability of the Bangalore companies to train workers fully, promote only the most deserving candidates, and keep corporate clients satisfied. That's especially important since a surge in demand for outsourcing services is expected when the U.S. health-care system gets overhauled and Wall Street prepares to comply with new financial regulations. For Bangalore, these are good headaches to have, but headaches nonetheless.

The bottom line: As recession fades, salaries are rising fast again in India's IT sector. High turnover will complicate efforts to keep staff quality high.

With Ketaki Gokhale

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