India’s largest information technology (IT) company, Tata Consultancy Services (TCS), has made the headlines today following the cut in variable pay for its senior employees. In simple terms, the company has reduced the bonuses or Quarterly Variable Allowance (QVA) for some of its senior employees, three quarters in a row. Let’s break it down to see why it’s happening.
What are TCS variable pay cuts?
Variable pay is a part of the salary of an employee, in addition to the fixed pay. It depends on things like the employee’s work, the company’s performance, and other factors. For senior employees at TCS, variable pay makes up around 15-20% of their CTC (cost to company).
This is the third quarter in which the company has reduced the variable pay.
- July-September 2024 (Q2 FY25): In the second quarter of FY25, TCS cut variable pay for senior employees, where they received only 20-40% of the expected variable pay. This marked a significant drop compared to the 70% payout in the previous quarter (Q1 FY25).
- October-December 2024 (Q3 FY25): This was the second quarter in a row where some senior employees (approximately 30%) received variable pay based on the performance of their business units, while 70% of the employees (mostly juniors) got nearly 100% of their QVA.
- January-March 2025 (Q4 FY25): This is the third quarter in a row where senior employees saw their QVA reduced, with some getting as low as 20% of what was expected.
In the latest pay cuts, junior employees (70% of employees), like freshers and those who are in lower grades (up to C3 level), have mostly received 100% of their QVA. But for senior staff (team leads and managers), which makes up 30% of employees, the payouts depend on business unit performance, while many are seeing much less than expected.
Why Is TCS Cutting Variable Pay?
- Tough Economic Conditions: The global IT industry is facing challenges as clients from the US and Europe are spending less on IT services due to economic uncertainties, including fears of tariffs or slower growth. This can also be seen in TCS’s Q4 results, where its revenue grew 5% and couldn’t manage to beat the estimates.
- Cost Control: TCS is following the cost-cutting measures to save money and invest in things like AI and training. Cutting the variable pay of those who have higher salaries, such as senior staff, seems to be one way to manage costs without laying off employees or stopping fresher hiring.
Summary
India’s largest IT giant, TCS, has cut variable pay for its senior employees for the third consecutive quarter. The company is distributing 100% quarterly variable pay to its 70% employees, which mostly includes junior. However, senior employees will be receiving reduced payouts, with some getting as low as 20–25% based on their business unit's performance. TCS is attributing the pay cuts to cost-control measures amid global economic uncertainty.
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