Poor salary hikes and fewer H1-Bs may force tech cos like Infosys roll out stock options

• Infosys recently gave away 50 million shares as stock options, accounting to 1.15% of its total shares, to a large base of employees.
  
• This year, Infosys gave 6% salary hike to 85% of its employees.
  
• Tata Consulting Services (TCS) gave 2-6% hike for 2019.
  

IT companies have been running out of options to retain their talent. Neither are they unable to give double digit salary hikes, nor are they able to lure them in with overseas opportunities--thanks to record high visa rejections.

During these difficult times, the country’s second largest IT company, Infosys might just have another plan up its sleeve. It recently gave away 50 million shares as employee stock options (eSOPs), accounting to 1.15% of its total shares, to a large base of employees.

“In the last 2-3 years salary hikes have not been very good. Added to that, the number of overseas opportunities have also been lower because of fewer H1B visa approvals. So a large stock option plan across a large share of employees is a good plan,” commented Mohandas Pai, the former CFO and HR head of the company, who is now a startup investor.

This year, Infosys gave 6% salary hike to 85% of its employees. Its peer, Tata Consulting Services (TCS) did no better with 2-6% hike for the same year.

Infosys has a high rate of attrition at a little over 20%, and Pai believes that the company has been losing their employees to large MNCs.

As newer technologies are being adopted by companies and clients, it is imperative for IT majors to retain their digital talent. Yet, few have been able to provide good salary hikes.

Better performance

As per the carefully crafted stock options, Infosys employees won’t have to wait too long to get their hands on the moolah, if the company does well. Unlike most employee stock options which specify a vesting date, a date at which they can be traded and sold—this is performance linked.

“It is a reflection of how important performance is in an environment of strong demand.

Performance based eSOPs essentially help employees grow with the company. It also helps the company align costs with revenue,” says Harit Shah, IT analyst at Reliance Securities.

If challenging performance criteria like total shareholder return against industry peers, increase in total revenue, digital revenue growth and operating margins are achieved, these stock options can be vested!

This way Infosys won’t have to pay upfront wage hikes, explains Shah, and wait to reap benefits later on.

As employees help shareholders build value, they can vest their shares at a time when their company is in the best of shape, bringing the double bonanza that IT professionals have been waiting for a long time.


It is now left to see if other IT majors will replicate this model.


See Also
Infosys’ 2019 employee bonanza: Here’s what you need to know