Over the last five years, the pay of senior executives at India’s top IT companies have increased by more than 160%, whereas entry-level workers have only witnessed modest growth of less than 4%. This discrepancy highlights a widening gap in India’s IT industry, where the biggest employer in the private sector is coming under increasing fire for paying workers too little.
Credits: Business Standard
The Numbers Tell a Tale of Two Extremes
In FY24, the median annual salary of CEOs at the top five IT companies—TCS, Infosys, HCLTech, Wipro, and Tech Mahindra—rose to an astounding ₹84 crore, marking a 160% increase in five years. In contrast, fresher salaries barely moved, growing from ₹3.6 lakh to ₹4 lakh—a paltry 4% rise.
This disparity is more pronounced when examining the CEO-to-fresher pay ratio. Wipro leads with a staggering 1,702:1, followed by Tech Mahindra (1,383:1), HCLTech (707:1), Infosys (677:1), and TCS (192:1).
What Drives This Inequality?
Global Benchmarks for CEOs
The stratospheric rise in CEO pay is attributed to aligning compensation with global CXO benchmarks. “The tech sector is unforgiving, and CEOs are rewarded for ensuring survival and success,” said Gaurav Parab, a principal research analyst at NelsonHall.
Low Pay for Freshers: The Pyramid Model
At the other end, fresher salaries remain suppressed due to the pyramid model, which relies on a vast pool of entry-level talent. Companies justify low pay by citing high attrition rates, poor education standards necessitating extensive training, and the availability of alternative candidates.
The Cost of Wage Stagnation
Impact on the Middle Class
Stagnant salaries for freshers and mid-level employees have hit the middle class hard. Mohandas Pai, former CFO of Infosys, highlighted the disparity, saying, “School and college fees have risen 60-70% in five years, but wages haven’t kept pace. This shrinks discretionary spending and hurts the economy.”
Inflation and High Interest Rates
With wage hikes barely matching inflation, the purchasing power of employees has eroded. This, coupled with high interest rates, has squeezed consumption further, exacerbating economic inequality.
A Declining Job Market for Freshers
The IT sector, once a beacon of employment growth, saw a headcount decline of nearly 64,000 employees in FY24—the first such drop in 20 years. Companies have focused on improving utilization rates and margins while curbing fresher hiring.
Even during the hiring surge of 2021-2022, freshers’ salaries were kept in check, revealing an inherent imbalance in how profits are distributed across the workforce.
Industry Leaders Speak Out
Criticism of the widening pay gap isn’t new, but it is becoming more vocal. Mohandas Pai has called for fresher salaries to be raised to at least ₹5 lakh annually, arguing that IT companies are profitable enough to absorb the cost. “Rewarding the top 1% while exploiting the bottom is fundamentally wrong,” he stated.
Kamal Karanth, co-founder of Xpheno, added, “The industry’s cost advantage depends on controlling fresher salaries. To offset dissatisfaction, companies must offer accelerated career paths or better global opportunities.”
Balancing the Profit Pie
Chief Economic Advisor V. Anantha Nageswaran has called for a more balanced profit distribution. Speaking at an event, he pointed out that unequal wage growth undermines broader economic goals like consumption and investment.
The compounded annual growth rate (CAGR) for wages in sectors like engineering and manufacturing was just 0.8% between 2019 and 2023, further highlighting a systemic issue in wage policy across industries.
What Needs to Change?
To address this inequality, experts recommend:
Revisiting Fresher Pay: Increasing entry-level salaries to at least ₹5 lakh annually would reflect the rising cost of living.
- Reducing CEO Pay Ratios: Implementing more equitable compensation models.
- Upskilling Initiatives: Improving the quality of engineering graduates to justify higher entry-level wages.
- Balanced Incentives: Focusing on employee retention through better career growth opportunities.
Conclusion: A Call for Equitable Growth
India’s IT sector stands at a crossroads. While it continues to drive economic growth and innovation, the widening pay disparity threatens to undermine its foundation. As companies navigate global challenges, they must also address the glaring inequities within their workforce to sustain long-term growth.
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