Tata Consultancy Services (TCS) has implemented a reduction in variable pay for certain senior employees, even as they adhered to the company’s work-from-office policy. This decision has led to cuts ranging from 20% to 40% for some senior staff members, with a few not receiving any bonus at all. In contrast, junior employees received their full quarterly variable allowance (QVA) for the latest quarter.

Overview of Variable Pay Adjustments

In a recent statement, a TCS spokesperson clarified that while junior employees across the company received 100% of their QVA for the second quarter of FY25, the variable pay for senior grades is contingent upon their unit’s business performance. “This is in line with our standard practice across quarters,” the spokesperson noted. The adjustments follow a 70% payout in the previous quarter, indicating a significant shift in compensation strategy.

TCS’s variable pay structure is intricately linked to both office attendance and the performance of individual business units. The company has been actively encouraging employees to return to the office, warning that non-compliance with attendance policies could lead to disciplinary action. As of July 2024, TCS reported that approximately 70% of its workforce was back in the office, with attendance numbers steadily increasing.

Updated Variable Pay Policy

In April 2024, TCS introduced a revised variable pay policy that directly ties bonuses to office attendance. The policy outlines four attendance slabs determining the variable pay:

• Less than 60% attendance: No variable pay for the quarter
• 60-75% attendance: 50% of the variable pay
• 75-85% attendance: 75% of the variable pay
• Above 85% attendance: Full variable pay for the quarter

This policy was part of TCS’s broader strategy to ensure employees return to physical offices five days a week, emphasizing the importance of in-person collaboration and organizational culture.

Q2 Performance and Future Outlook

For the second quarter, TCS reported a year-on-year revenue growth rate of 5.5% in constant currency terms, reflecting broader trends within the IT sector. The company anticipates improvement in performance by Q4, with management expressing optimism that headwinds affecting growth will stabilize by Q3. “We expect the headwinds to stabilize in Q3 and return to growth in Q4,” TCS management shared during their recent earnings call.

Industry Context

TCS’s decision to link variable payouts to office attendance sets it apart from other major Indian IT firms such as Infosys and Wipro, which have not adopted similar policies. Wipro recently distributed an average variable payout of 85% for its employees, highlighting a different approach to employee compensation amid changing work dynamics.

The implementation of this updated variable pay policy underscores TCS’s commitment to fostering a collaborative work environment while navigating challenges posed by economic uncertainties and evolving industry demands.

Conclusion

As TCS continues to adapt its compensation strategies in response to market conditions and employee attendance patterns, the recent reduction in variable pay for senior staff raises important questions about employee morale and retention. With ongoing changes in workplace dynamics and expectations around hybrid work models, how TCS manages these transitions will be critical for maintaining its competitive edge in the IT services sector.