BANGALORE: Infosys has begun sacking employees at the bottom of the performance pile, returning to a practice it adopted during the peak of the global economic crisis in 2008 and 2009, according to people familiar with the development.
The renewed lack of tolerance for poor performance, which will affect up to 5,000 employees, is indicative of the pressure the software company faces to curtail costs while pivoting towards a more aggressive sales strategy.
The Bangalore-based company is resorting to retrenchment by suspending a plan crafted by co-founder NR Narayana Murthy to help underperformers come up to scratch. Instead of giving underperforming staff up to six months for retraining, India’s second-largest software company is asking the worst performers, about 3-4% of the 1.5-lakh workforce, to leave straightaway.
Infosys spokeswoman Sukanya Ghosh did not reply to emails, phone calls and text messages seeking the company’s comments.
This is the latest in a series of management decisions perceived as employee-unfriendly. Some months ago, Infosys, which has been lagging the industry in growth for over a year, had frozen salary hikes, blaming bad market conditions and insufficient visibility into near-term growth. It relented eventually and announced increments after its main rivals revised salaries for staff.
“Earlier, companies would go the extra mile to retain them (poor performers). But lately, due to slow business growth, they are seriously looking at downsizing,” said Kris Lakshmikanth, CEO of Headhunters India, a human resource consultancy.
With a sales growth forecast of about 5% for the year to March 2013, Infosys figures at the bottom among India’s top IT firms. Analysts expect Infosys to further lower growth guidance when it announces earnings for the three months to December on January 11.
Infy eyeing riskier deals
In a report on Tuesday, Vishal Agarwal, equities analyst at brokerage Jefferies, wrote that he expects the forecast to be lowered to 4%, excluding contribution from Lodestone, the Swiss company that Infosys acquired in September for $350 million. In comparison, Nasscom expects the industry to grow at more than double the pace, or at least 11%.
Infosys, which is perceived as a conservative company, has been sending out signals that it is more willing to take on riskier deals, some of which involve taking over assets and employees of clients.
A more aggressive customer-acquisition strategy comes with the danger of diluting margins, a prized metric for the company.
“An additional month (of retaining a low-performer) would be an additional cost to the book,” said Vijay Sivaram, business head for recruitment solutions division at Bangalore-based HR consultancy Ikya.
In a similar move in 2009, Infosys had pink-slipped more than 2,000 employees at the bottom of the performance heap.
Post the financial crisis, which began in 2008, work volumes haven’t picked up significantly for Infosys, resulting in increasing number of employees not working on any billable projects.
Among Indian IT companies, Infosys and Wipro have the lowest efficiency levels, with about 30% of employees sitting idle.
“We believe cleaning out employees at the bottom of the pyramid will become the new norm across all IT companies and will stay for this year,” said Sangeeta Lala, co-founder of TeamLease.
Infosys denies large scale layoff
Amid speculation of large scale layoff at Infosys affecting nearly 5,000 employees, country’s second largest software services company on Friday said it actively asks the “under-performers to seek other jobs“.
Without giving the exact number of the affected employees, Infosys said in a statement that this will be lower than 5,000.
The company did not disclose the number despite repeated attempts.
“This (the report) is wrong in two different aspects. One, there is no layoff. Infosys is a performance-driven company. And like any performance-driven company, it actively manages under-performance and encourages chronic under-performers to seek other jobs,” it said in a statement.
While stating that the affected number might be lower than 5,000, the company said such steps are part of normal business routine.
“Two, the number that may be affected is significantly lower than the 5,000 quoted in the article. For a performance-driven company with more than 1,50,000 employees this is part of the normal ebb and flow of running a business,” it said.
Infosys said such steps are taken regularly and is not a “one-time event”.
“This is done regularly and is not a one-time event. We have a robust performance management system that includes structured appraisals and performance feedback,” the statement said.
The BSE-listed company is scheduled to announce its third quarter results on January 11.