Pink slips, but cos still spend more on salary

[dhilipkumar]

Pink slips, but cos still spend more on salary

The proverbial pink slip, now very much in circulation, seems to have failed to contribute to cost cutting efforts of Indian companies. On the contrary, salary components have comparatively gone up in several balance sheets.

An analysis of the total costs incurred by 215 companies of the BSE-500, who declared their fourth quarter results and whose data is available with the Centre for Monitoring Indian Economy (CMIE) database, shows that almost 119 companies have actually seen an increase in their salary component of total costs when compared to the same quarter the previous year.

Companies which have seen a significant increase in salary component include IT bigwigs like Tech Mahindra, HCL Technologies, Wipro, Tata Consultancy Services; pharma major Pfizer, Noida Toll Bridge Company (NTBC) and even the relatively new equity broking company Geojit Financial Services. For the quarter ended March '09, the expenditure on salary and wages of these 215 companies was Rs 21,324 crore, constituting about 9.44% of total costs. In comparison, the total salary and wages for the quarter ended March '08 for the same companies was Rs 17,969 crore accounting for about 8% of the total costs. In fact, Jindal South West Holdings tops the list with an increase of almost 20 percentage points in its salary costs.

IT firm Tech Mahindra, which ranks second on the list, has actually seen its salary costs increase by about 15.25 percentage points. HCL has also seen an increase of about 8.49 percentage points in its salary costs. Both Tech Mahindra and HCL declined to comment on the reasons for the rise in salary costs. The 6.71 percentage points quarter to quarter increase in staff costs as a percentage of total expenditure of NTBC is attributed to a reduction of total expenditure caused by the co's adoption of new guidelines issued by the Institute of Chartered Accountants of India (ICAI).

"The excess provision of depreciation in the earlier quarters had to be written back in the current quarter and thus the total expenditure has been reduced," says TK Banerjee, chief financial officer of NTBC. Moreover, the company has also given a 5% increment to its junior staff.

In fact, experts say the comparative increase in salary costs could be the result of companies adopting the revised AS15 accounting standard introduced by ICAI, which has resulted in a change in the valuation of retirement benefits. As per the new standard, companies will have to calculate the last salary that will be drawn by an employee and provide for pension and gratuity liability on that basis. Some of these companies being in relatively slowdown immune sectors like pharma is also one of the reasons for rising salary costs. Pharma major Pfizer, for instance, showed a quarter on quarter increase of 5.90 percentage points for the quarter ending Feb '09. "A healthy balance sheet ensures that we have not cut back on any of our talent and employee development initiatives. We believe the key is colleague engagement. While remuneration is one of the key drivers, we are also redesigning jobs to make them more engaging for the colleagues," says Uday Mohan, HR director of Pfizer India.

What happened with Geojit Financial Services is, meanwhile, quite intriguing. While Geojit underwent a 15% reduction in the number of its employees and saw a 11% dip in the total salary cost, data shows that Geojit has actually seen a 3.33 percentage point quarter on quarter increase in their salary costs. According to the Geojit CEO, CJ George, the predominant reason for the development is the fact that two joint ventures of the company - BNP Paribas Securities India, Mumbai, and Aloula Geojit, Dubai - began their operations in 2008-2009. "The full-year salary costs of employees in these JVs, which are substantial, were accounted in the last quarter of 2008-09. Also, during 2008-09 we expanded our branch network extensively," says George.

Human resource experts also say that many companies which recruited people in the first half of last year at high salaries have actually not let their employees go, but have kept them on the bench. "Hence, while the sales have decreased, the salary component has increased. Also, many Indian companies only took to cost-cutting measures since January and many are yet to begin cutting their employee costs," says Kris Lakshmikanth, CEO Headhunters India.


indiatimes

[dhilipkumar]

In fact, experts say the comparative increase in salary costs could be the result of companies adopting the revised AS15 accounting standard introduced by ICAI, which has resulted in a change in the valuation of retirement benefits. As per the new standard, companies will have to calculate the last salary that will be drawn by an employee and provide for pension and gratuity liability on that basis. Some of these companies being in relatively slowdown immune sectors like pharma is also one of the reasons for rising salary costs. Pharma major Pfizer, for instance, showed a quarter on quarter increase of 5.90 percentage points for the quarter ending Feb '09.

"A healthy balance sheet ensures that we have not cut back on any of our talent and employee development initiatives. We believe the key is colleague engagement. While remuneration is one of the key drivers, we are also redesigning jobs to make them more engaging for the colleagues," says Uday Mohan, HR director of Pfizer India.

What happened with Geojit Financial Services is, meanwhile, quite intriguing. While Geojit underwent a 15% reduction in the number of its employees and saw a 11% dip in the total salary cost, data shows that Geojit has actually seen a 3.33 percentage point quarter on quarter increase in their salary costs.

According to the Geojit CEO, CJ George, the predominant reason for the development is the fact that two joint ventures of the company - BNP Paribas Securities India, Mumbai, and Aloula Geojit, Dubai - began their operations in 2008-2009. "The full-year salary costs of employees in these JVs, which are substantial, were accounted in the last quarter of 2008-09. Also, during 2008-09 we expanded our branch network extensively," says George.

Human resource experts also say that many companies which recruited people in the first half of last year at high salaries have actually not let their employees go, but have kept them on the bench.

"Hence, while the sales have decreased, the salary component has increased. Also, many Indian companies only took to cost-cutting measures since January and many are yet to begin cutting their employee costs," says Kris Lakshmikanth, CEO Headhunters India.

indiatimes