A large number of IT, ITES and IT based consulting and Business Process Outsourcing (BPO) companies are throwing out employees in tens of thousands under various pretext. Tech Mahindra, TCS, Infosys, Cognizant technologies, Wipro, L&T Infotech, Capgemini, and Vodafone are some of the companies which have been in the news for handing over the pink slip to employees. Most of the companies claim that only non-performers who could not improve their performance, in spite of opportunity given by the company, have been asked to find another job. Some of the companies have admitted that due to various developments in the IT field their margins are under pressure, which is why they have to get rid of non-performers so as to ensure their competitiveness. However, all of them are insisting that they are also recruiting heavily.
In reality what is happening is that these companies are getting rid of existing employees and recruiting new employees. Why are they getting rid of existing experienced employees? The reason is simple! New recruits are available at much lower cost. Hence, classify existing employees as non-performers, throw them out, and recruit new cheaper work force in their place! This is the modus operandi they are following.
It is true that the advent of some new technologies like Artificial Intelligence, Cloud computing, etc. is making some IT jobs redundant. For example, Artificial Intelligence tools make a large work force, required to carry out the testing and authentication of newly written algorithms redundant. However new technologies also open many new vistas. Then why not train the existing employees to carry out new tasks? This is how we working people think. But capitalist owners do not think like that. “Fire the existing workers and recruit cheaper and younger people as replacements”, they say. And who is responsible for the livelihoods of those who lose out? “Oh, they have to take care of themselves and find other jobs” they say! This is how capitalist owners think.
Petitions being filed by laid off Tech Mahindra employees
Earning maximum profits for the capitalist owners is the only motto of these companies. Hence they are always looking for ways to cut costs. Cutting down benefits to employees, increasing working hours without increasing wages, and cutting down the number of employees are always the first cost cutting measures they take. Whenever their profit margins come under pressure, they downsize. But why should employees be made to bear the burden of technological changes and changes in policies of other countries? Why can’t capitalist owners accept lesser profit margin for some time till their employees are retrained? Why can’t they give up some of their accumulated profits to shore up the companies for some time instead of taking away livelihood of thousands of workers?
And due to whose efforts have the capitalist owners minted money in the past? It is the sweat of lakhs of IT and ITES workers which creates profits and will continue to create profits. Their sweat is the source of wealth of the capitalist owners of IT companies. They had invested very little capital when they started these companies. They made them huge by ploughing back profits made through the labour of IT workers. Whatever little capital they invested to start came out of sweat of workers of their other businesses. Capital by itself does not create any profit or wealth. With capital they can buy computers and tables, can build an office but without the labour of IT workers can computers, tables, offices create any profit and wealth? No friends. It is only human labour that creates profit for capitalists. Wealth is just accumulated profit in the hands of capitalists.
IT workers need to understand this reality and not be misled by all the ‘gyan’ the IT company owners give. In order to understand the above better with facts and figures, a study and analysis of the officially published documents of the major IT companies – the Annual Reports – for the last few years has been carried out by a team appointed by the Maharashtra Regional Council of Lok Raj Sangathan. The first in this series is the analysis of Tech Mahindra, which is presented here.
Analysis of IT Companies – Part 1
Tech Mahindra (Tech M)
Tech M is a global company with more than 170 subsidiaries around the world. It started as a joint venture with British Telecom in 1986 and worked only in the telecom domain till 2013 when Mahindra Satyam was merged with it. Even today telecom remains its major domain of business.
In Financial Year (FY) 16-17, its global revenue was Rs.29,000 crores (cr.). Its global headcount was 1.17 lakh employees. The Indian arm of the Tech M accounts for 80% of the global revenue and 84% of the total head count.
In FY16-17, revenue generated per employee was approx. Rs.24 lakhs. Personnel cost increased from Rs. 6900 cr. in FY 13-14 to Rs. 7700 cr. in FY 16-17, i.e., by 11.5% while the revenue increased from Rs. 16,300 cr. to Rs. 23, 100 cr., i.e., by 41% during the same period. As compared to FY 13-14 each employee generated nearly 30% more revenue! However during the same period employee cost increased by only 11.5%.
During FY 16-17, Profit Before Tax (PBT) generated per employee was Rs. 3.9 lakhs whereas the average wage per employee was Rs. 7.8 lakhs. This means, each employee on an average generated 50% of their wages as profit for the company!
There is very large disparity between the pay packages of Top and Senior Management and the average employees. For example, the CEO of the Tech M alone earned Rs.165 cr. in FY 15-16 and Rs. 150 cr. in FY 16-17. Thus he alone earned a salary equivalent to around 2000 employees! If one excludes wages of the Top management which are many times higher than median wages, then all other employees generated much higher percentage of their wages as profit for the company.
During the FY 16-17, the shareholders were paid Rs. 5.60 for every rupee they had put in, i.e. a return of 560%! So the shareholders got the highest ever return in FY 16-17 when the employees who created the profit, got raises of only 0.36%.The total dividend paid was Rs.1378 cr. whereas salaries of employees increased by only about 800 crores!
IT companies have been enjoying many tax concessions. For FY 16-17, Tech M paid a tax of only 21.4% and for FY 15-16 only 18.1% on its profits as against the normal tax rate of 34.6% (tax+ surcharge +cess). Thus the tax concessions enjoyed by Tech M during just the last two years amount to around Rs. 1400 cr. But these tax concessions were used to enrich the shareholders of the company. Nothing was shared with the people who actually created all the profit for shareholders.
More than Rs.12000 cr. of profits have been ploughed back into the company over the years for its growth. Tech M has loans of only Rs. 350 cr., which is very small compared to its size. This means that the entire growth of Tech M over the years has been achieved by utilizing profits generated by its employees! During the last 4 years, nearly Rs.2000 cr. have been invested into new land and buildings.
Tech M spent only about Rs.20 cr. on training during Financial year 16-17, which is just about Rs.2000/- per employee ! So the training of employees in new technology is obviously not the priority of the TM.
Mahindras hold only 26% of share capital and have invested only around Rs 60 cr. into the Tech M as share capital and with that they are controlling a company with a turnover of Rs 29,000 cr., making average profit of Rs 3400 cr. (PBT) and employing nearly a lakh people. In just one year of FY 16-17, Mahindras’ share of dividend paid by Tech M was over Rs. 350 cr.!
This clearly shows what the priorities are for the owners of Tech M. Maximizing shareholder earning is their top most priority. Creating more personal wealth for the owners is the only concern. They have no concern for the workers of Tech M.