Infosys, India’s second-largest IT services company, has scaled back the average variable payout of employees to about 70 per cent for the June quarter amid a squeeze in margins and high employee costs, according to sources.

Recently, Wipro held back the variable pay of employees mainly because of the pressure on margins, inefficiency in its talent supply chain and investment in technology. Larger rival Tata Consultancy Services has reportedly delayed quarterly variable compensation payout of some employees by a month.

According to the sources, Infosys has reduced variable payout for the June quarter, or Q1 FY23, to about 70 per cent and employees have been informed about the decision. An email sent to Infosys did not elicit a response. Last month, Infosys reported a lower-than-estimated 3.2 per cent rise in June quarter net profit amid escalating costs. However, the company raised its full-year revenue growth outlook to 14-16 per cent citing strong demand and robust deal pipeline.

The company maintained the margin guidance at 21-23 per cent but made it clear that with the increase in cost environment, it will be at the lower end of the margin outlook. Infosys’ operating margins were at about 20 per cent in Q1 FY23. Higher employee benefit expenses, sub-contracting costs and travel expenses had pushed up overall costs for the Bangalore-based firm in the June quarter.

An elevated level of attrition leading to higher employee costs is denting the profitability of the Indian IT industry. Infosys’ chief financial officer Nilanjan Roy in the Q1 earnings statement, had said the company is fuelling the strong growth momentum with strategic investments in talent through hiring and competitive compensation revisions. “While this will impact margins in the immediate term, it is expected to reduce attrition levels and position us well for future growth,” Roy had said.

The company had said it continues to optimise various cost levers to drive efficiency in operations. Compensation hikes, however, impacted margins by 160 basis points, and utilisation dipped due to the impact of freshers coming in.

The company asserted that these were more in the nature of “investments” given the robust demand scenario, and assured it will be looking at cost optimising levers such as better utilisation and more automation. Wipro too has held back employees’ variable pay due to pressure on margins.

Managers to the C-suite level of the company will not get any portion of variable pay, while employee grades between freshers to team leaders will get 70per cent of the total variable pay, sources said.