Narayan Murthy's Infosys breezer
The news is out and it was expected too. Narayan Murthy [NRN, as he is called by some in Press] has increased salaries by average 8 per cent. This comes after a freeze which Shibulal, CEO announced last year following poor performance of Infosys.
This change and raise was expected by all, and nothing in it surprises anyone. The quantum of increase is also not something like what Maruti announced following its attempts to assuage feelings of its workers – they claimed that they gave a heft jump of almost 50 per cent. [PUDR says this is eye wash. For those who want to read an excellent analysis and the ‘real’ story, please take a dekko at PUDR’s report ‘Driving Force.’ It is available on their website.]
Maruti pays barely 2 per cent of its Net sales as Employee cost, whereas Infosys pays over 50 per cent. That is because the real assets of an IT company are its people. This is where the difference is and it also ends there.
While TCS and Wipro reportedly paid 8 to 10 per cent salary hike in 2012, Infosys said that it did badly in 2012 so it was skipping the annual increment. It makes sense that if the company is not doing well then the employees will be affected, and perhaps can be expected to make sacrifices. The extent of such ‘sacrifice’ [I can’t think of a better word, ‘sacrifice’ somehow brings in religious or pious flavour to it, quite unwarranted here!] is arguable but the principle seems to be okay.
The question is then did Infosys do very well to increase the salaries? We know the answer, no, they goofed up! Then why increase salaries?
The truth lies somewhere in between: The fact is that costs must be controlled, but market situation cannot be ignored. Employees often accept a lower increase when an organisation with otherwise excellent track record does badly in one or two years. But they will not forever stay out of sync with market on salaries. It is very difficult to say what ‘market’ rate is because it requires making some assumptions, and each set of assumptions can produce a different rate. The trouble is that once the employees start thinking [which they do when a ‘freeze’ is imposed] that they are being paid less than market, they perceive a high gap between their and their contemporaries salaries, whether it exists or not. To add to this is the natural tendency of people to compare one’s salary with somebody who is drawing higher in other company.
Managing compensation is not difficult as long as one makes the philosophy clear. Dr Jeffrey Pfeffer talks of ‘six myths about pay.’ One of those myths is that “keeping labour costs low creates potent and sustainable competitive edge.” It does not. If we go by Infosys story [though only of one year], it tells this point emphatically. There is no substitute for a clearly defined and communicated policy. And tweaking compensation is not a policy.
A salary increase perceived as a ‘comeback gift’ even if unintended, does a great invisible damage. It sends very wrong signals. Management policies get equated to personal idiosyncrasies of its MD or CEO. This in turn has a telling effect on whether personality cult [read sycophants] will succeed or whether cold logic and rationale of business. Needless to say who will win.
Maruti on the other hand clearly made a feudal decision. The entire story of Maruti’s labour relations smacks of feudal spirit. Maruti’s wage hike was like ‘country liquor.’ It was supposed to have a knock-out effect in one shot. What Narayan Murthy has delivered is an ‘Alcopop,’ like a Bacardi breezer – it is mildly alcoholic, it raises spirits and it does not carry as much disapproval as the country liquor.
But country liquor or Bacardi Breezer - it is no medicine!