Tech Mahindra Ltd’s employees can now expect fatter paychecks, as it has started rolling out company-wide salary hikes from January 2025, in a bid by new chief executive Mohit Joshi to retain employee confidence.
Significantly, these hikes come after at least 18 months for senior executives of the company, and amid government’s concerns over stagnating wages despite high corporate profits that have hurt consumption demand in the country.
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“We have finally got a hike after one-and-a-half years. Since CP (Gurnani) left, none of the senior guys got hikes,” said a senior Tech Mahindra executive on the condition of anonymity.
“Most employees have got a hike of 7% on average, whereas top performers have received up to 12%,” added the employee.
Much like its peers, Tech Mahindra’s annual pay increments were pushed back for the second year running, as software service providers looked to combat low demand and shore up operating margins last year.
Tata Consultancy Services Ltd was the first of the country’s top five information technology (IT) services companies to roll out salary hikes, giving increments of 4.5-7% in the April-June 2024 period, whereas Bengaluru-based Wipro handed out salary increments of 4-8% from September last year.
An email sent to the spokesperson of Tech Mahindra on Friday seeking comments went unanswered.
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At least one analyst said the move was aimed at retaining employees. “Hikes were pending because Joshi had to do a better job at retaining people, especially since many had left after CP’s (Gurnani) exit,” said a Mumbai-based analyst working at a domestic brokerage. “His focus on the margin improvement program includes the company’s employees and he needs them to be happy,” said the analyst.
The Economic Survey for 2024-25, tabled in parliament on Friday ahead of the budget, said that corporate profits were at a 15-year high while real wages had stagnated, suggesting that companies, particularly larger ones, should raise wages in line with profit growth. It said this was needed to narrow income inequality and boost growth.
Season of hikes
Tech Mahindra’s salary hikes come at a time when two of its peers, including Infosys Ltd and HCL Technologies Ltd, disproportionately rolled out wage hikes to employees.
Infosys, India’s second-largest IT services firm, will give salary hikes in two phases, with the first phase starting in January this year and the second phase later this year in April, according to the company’s management in its post-earnings interaction with the press on 16 January.
“The comp that we are expecting is 6% to 8% in India and the overseas comps will be in line with the earlier comp reviews,” said Jayesh Sanghrajka, chief financial officer of Infosys, as part of the press conference. Comps refer to salary hikes.
HCLTech, the third-largest IT firm, did something similar. The Noida-based IT outsourcer rolled out salary hikes to junior employees in the October-December 2024 period, whereas the middle and senior management will get their hikes in the January-March of 2025, as per the company’s management. Wage hikes range from 7% on an average to 14% for top performers.
Tech Mahindra started giving out compensation revision letters to employees late last December.
“Congratulations… we are happy to share your compensation revision letter with you,” read the company’s internal memo sent to employees on 27 December 2024, and seen by Mint. “We take this opportunity to thank you for your relentless efforts and contribution towards achieving key priorities for TechM,” read the memo.
Turnaround play
The move to roll out company-wide salary hikes signals that Mohit Joshi, who took over as chief executive of Tech Mahindra in December 2023, wants to retain his 150,488 employees as he is charting a turnaround for the company which ended last year with a revenue decline.
Less than four months after taking over, Joshi, who is based out of London, announced a three-year roadmap called Project Fortius. As part of this, the company expects to expand its operating margins to 15% by March 2027 and grow faster than peers.
Joshi took over as CEO from C.P. Gurnani, who occupied Tech Mahindra’s corner office for almost 15 years.
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Tech Mahindra’s hikes come even as the Pune-based company’s operating margins are the lowest of the country’s five largest software services providers.
Tech Mahindra reported an operating margin of 10.2%, with a quarterly revenue of $1.57 billion for the three months through December 2024. In contrast, TCS, Infosys, HCLTech, and Wipro reported a profitability of 24.5%, 21.3%, 19.5%, and 17.5%, respectively.
This move to roll out wage hikes by the company is in line with the management’s commentary.
“So, from a wage hike perspective we have announced that to be in the current quarter Jan-Feb-March. So, that’s the decision we have taken, I think that definitely will impact margins to the tune of 1%- 1.5% (in Q4),” said Rohit Anand, chief financial officer of Tech Mahindra, in the company’s post-earnings interaction with analysts on 17 January.
Salary hikes impact the operating margins of IT services companies because people costs make up about a half of an IT outsourcer’s overall expenses.
Still, for Tech Mahindra, its operating margins have been expanding since July 2023, from 4.7% at the end of the three months through September 2023 to 10.2% at the end of December 2024.
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