Attrition Effect: Has the Time Arrived to Link Attrition to Performance?

Attrition has been a cause of worry for the Indian IT companies for quite some time now. Last financial year (FY11) saw the attrition in almost every major Indian IT company going up significantly when compared to the preceding year. With the demand for IT services going up, in absence of poaching agreements with rivals unlike Indian Telecom firms, it is becoming increasingly more and more difficult for the IT companies to retain the talent.

I happened to compile the attrition figures of Indian IT majors over the past few years. For IT biggies, the attrition has hovered mostly between 10-15% in the past few years. Here is what the figures look like:

FY11	17.0 %	14.4 %	24.7 %*	–
FY10	13.4 %	11.8 %	13.6 %	15.7 %
FY09	11.1 %	11.4 %	13.2 %	13.0 %
FY08	13.4 %	12.6 %	16.8 %	15.2 %
FY07	13.7 %	10.6 %	–	–
FY06	11.2 %	–	–	–

Notes: Infosys attrition figures exclude its subsidiaries; TCS attrition figures take into account both its IT services as well as BPO business but excludes its subsidiaries CMC, e-Serve & Diligenta; Wipro attrition figures include involuntary attrition and correspond to only its IT Services excluding BPO Operations, Indian IT Operations & Other Overseas subsidiaries. For FY11, Wipro has not yet released the overall attrition figures comprising of involuntary attrition, therefore, an estimated 2% involuntary attrition has been added to the voluntary attrition of 22.7% to make the figures comparable.

 

Here goes the graphical representation of the above figures. Clearly, HCL and Wipro have witnessed high attrition when compared to their rival IT majors in the past few years.

Wipro has been the worst affected with attrition amongst the top-tier Indian IT companies and it has witnessed the attrition becoming almost double when compared to preceding financial year. Attrition has become one of the major causes of worry for the IT major in the fiercely competitive marketplace. In order to overcome it, in a first of its kind initiative, Wipro has decided to add attrition as one of the key metrics to calculate the quantum of variable pay. It has gone ahead with linking 20% of the quarterly performance linked incentive to attrition for the senior and mid management.

Although many IT companies have laid many stringent norms like increasing the notice-period to 3 months and strict adherence to this in terms of not allowing anyone to leave the company before serving this mandatory period from the date of resignation. However, even these have not helped the companies to a large extent. Neither do these measures are going to help the companies in the long run.

Wipro’s initiative of linking senior and mid-level management employees’ variable pay to attrition has set the ball rolling for other IT companies to follow the suit. Only time will tell if Wipro’s model of linking attrition with performance drives the point home and if it gets replicated in the IT industry.