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Indian IT services biz HCL sees boom in business – and staff attrition
Company pauses bonus clawbacks amid controversies and drop in share price
HCL's latest quarter was packed with revenue growth and new deals – but also saw a near-doubling of attrition when compared to last year, affecting net profit and forcing the firm to get creative in preventing staff from jumping ship.
The Indian IT service provider reported [PDF] year-on-year revenue growth of 13.8 per cent to $2.977bn for Q3 of its fiscal 2022 ended 31 December, saying this was the highest growth in the last 47 quarters.
The IT and Business Services division brought in $2.103bn, up 15.3 per cent; Engineering and R&D Services generated $473m worth of sales and Products & Platforms turned over $402m, up 8.2 per cent.
Total contract value (TCV) of new deals grew 64 per cent year-on-year to $2.13bn, thanks to eight large services agreements and eight significant product deals across technology and services, financial services, and life sciences and healthcare, as well as a number of smaller ones.
Services TCV grew 63 per cent to $1.97bn and products TCV grew 70 per cent to $167m.
The company gained a significant number of new clients across a range of spending categories. An HCL exec on an earnings conference call said the uptick in business came from a few trends – including clients who needed to accelerate their digital transformation, companies filling their employee shortages by outsourcing, and a general trend towards keeping up with Industry 4.0 technology.
About the staff, though…
HCL will need some staff to handle all the new deals, and has already added 10,000 this quarter.
"I believe we continue to be in a vantage position to address sustained demand momentum as our investments on strategic priorities like digital, cloud & engineering capabilities and our talent development plans are showing strong returns," said [PDF] CEO C Vijayakumar.
Attrition nearly doubled from 10.2 per cent in December 2020 to 19.8 per cent in the last three months of 2021. High recruiting costs to replace the staff was one reason net profit declined 15.2 per cent to $458m.
An exec on the call described recruiting costs as a "headwind" for the company. Referring to retention costs, recruitment costs and requisite higher bonuses, the exec said "that is the supply side issue the whole industry is facing, which we are also going through. That factor alone amounts to about 85 basis points on the quarter."
HCL is indeed not alone in dealing with elevated attrition rates. Last week Tata Consulting Services (TCS) reported 15.3 per cent attrition in its Q3 investors call. Infosys reported 25.5 per cent and Wipro 27.7 per cent.
Those three companies saw their highest attrition rates in three years, and were forced to raise hiring targets amid a pandemic-induced boom in global digitalisation demand as well as a trend from shifting data centres to clouds.
In the calls, execs from TCS and Wipro were optimistic about attrition stabilising or improving in the next quarter. An HCL exec said that he expected the company's attrition rate to continue before it moderates.
Why don't you stick around?
According to IT labour rights nonprofit Nascent Information Technology Employees Senate (NITES), HCL has also taken an unorthodox approach to preventing attrition – in the form of issuing clawbacks on bonuses for employees that resign. NITES has alleged that the controversial practice is illegal, and filed an official complaint on 5 January.
Following reports from The Register and public backlash, HCL quietly removed the policy for one bonus – known as the Employee Performance Bonus (EPB) – but not all of the bonuses listed on its company intraweb. The clawback initially remained in place for the advance monthly performance bonus (AMPB), but the company reversed its position on AMPB today, just three days after we ran an article revealing the rollback had been partial.
- HCL Technologies makes partial change to its controversial bonus clawback policy
- Wipro, Infosys and TCS feel pain of staff attrition as the Great Resignation continues
- IT labor rights group files complaint against HCL, claiming it's clawing back bonuses
- HCL accused of wage theft, underpaying H-1B workers by at least $95m a year
While current and former employees faced with the clawback have described the practice as an unexpected financial hardship in distressed letters to NITES, HCL has justified the policy – arguing it gave full bonuses ahead of time from 2021 onward, regardless of employee performance, and included employees with less than 10 years' experience in the bonus scheme.
On last Friday's Q3 investor call, an HCL exec called the practice "misunderstood" and "employee friendly."
"This was for a small set of employees, and we have taken some corrective steps because in this environment we wanted to be absolutely sure that we're doing everything to support our existing employees and our former employees," said the HCL exec. "I don't see any impact or anything, there's nothing meaningful to really call it out as an impact."
At a separate event the same day – the Q3 FY22 press conference – chief human resources officer Apparo VV presented the company in the role of a benevolent benefactor, guilty of perhaps being too helpful.
Apparo said moving the pay from the end of the year or quarter to the beginning was done to "help people with more cash flows."
"We benefited the employees, but I think it was not understood very well that this is an advanced payout of variable pay that we are giving, hence the policy is very clear that in case they leave in between they have to pay it back – because this is something which they will otherwise get at the end of the year or end of the quarter," added Apparo.
According to materials received by NITES and viewed by The Register, HCL amended the policy for the AMPB bonus so that employees whose last working day falls after 1 January 2022 will no longer face any recovery. Any employee who resigned before 31 December 2021 is still required to pay back AMPB.
Shares of HCL Technology fell as much as 6.2 per cent on Monday. Following the Q3 results, brokerage firm ICICI Securities downgraded its recommendation of the company to "hold" while estimating a decline in operating margins. ®