Salary cuts and dismal pay increases are a common strategy for companies going through financial distress,
French information technology company Capgemini has given a minimal salary hike to most of its staff and none to quite a few, causing discontent within the ranks. To add insult to the injury, the company while announcing its first quarter earnings today, said it has started the year with "excellent growth momentum" which is expected to continue going forward.
Capgemini has reported 3,153 million euros of revenues for the first quarter of 2018, up 7.2 percent at constant exchange rates, and has maintained its forecast for the next year.
In its earnings release, Capgemini said it expects to “accelerate its growth with revenue progression of 6 percent to 7 percent at constant exchange rates, to increase profitability with an operating margin of 12.0 percent to 12.2 percent and to generate an organic free cash flow in excess of 1 billion euros.
On the other hand, employees expecting decent raises were disappointed this week after the IT services major handed out increments of 0-4 percent.
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Several disgruntled employees took to social media on Friday to air their grievances.
"Our employee remuneration is defined in an objective process, consistent with industry norms, to ensure we are aligned with our customer needs, business priorities, and the overall industry evolution. Annual increments are determined by individual performance and potential, and the strategic business goals of the company," said a Capgemini spokesperson in an email response to Moneycontrol.
According to some employees Moneycontrol spoke to, Capgemini also announced a cut of up to 20 percent cut in variable pay for the year.
“I believe it is a strategy to downsize,” said an IT recruitment firm executive who did not wish to be identified.
Salary cuts and dismal pay increases are a common strategy for companies going through financial distress, as explained in this article. However, this has an impact on employee morale, and top performers usually leave for other companies that offer superior compensation.
On March 31, Capgemini Group’s total headcount was 2,03,400, up 3.9 percent from last year, with an increase in employees in offshore centers to 1,15,900, which is 57 percent of the total headcount.
But Capgemini has been posting good results. Paul Hermelin, chief executive officer of Capgemini Group said in a statement earlier on Friday, “Capgemini starts the year with an excellent growth momentum. The Group continues to win market share, reflecting the alignment of its service portfolio with customer demand for both innovation and competitiveness. Demand is particularly strong in Europe and North America, driven notably by the financial services, consumer goods and manufacturing sectors.”
Digital and cloud revenues grew 20 percent at constant exchange rates and accounted for over 40 percent of group revenues.
Employees who took to Twitter also questioned why were they not being adequately compensated if the Group was performing well.
In its response to queries from Moneycontrol, the Capgemini spokesperson further said, "We are committed to rewarding top performers and offering them a strong career path, and have successfully completed promotions for 2018. We are also investing heavily in re-skilling our workforce. In 2017, over 60,000 employees in India have undergone training. This year, we aim to provide every employee the opportunity to participate in one or more training programs in emerging digital skills."
Mass layoffs in the IT industry
The news of mass layoffs in the Indian IT industry has been doing the rounds for over a year now. While the industry and individual companies have consistently denied such reports, industry experts maintain there is a move to reduce the number of people on bench.
“Bench” is a layer of employees who are not assigned to projects, and kept ready for upcoming projects. As cost pressures increase, companies are looking at “just-in-time” hiring.
Last year, several stories of employees being asked to leave surfaced.
In a recording uploaded on YouTube last May, a person claiming to be a Capgemini employee based in Gurgaon had recorded her exit interview, where she can be heard having an argument with two company executives.
According to another industry executive who did not wish to be named, this could be an indirect way to get employees to leave voluntarily instead of asking them to quit.