Tata Consultancy Services (TCS), India’s largest IT services firm, has rolled out 100% variable pay for over 70% of its employees for Q1 FY26 (April–June 2025).
This includes employees up to the C2 grade, while those in higher bands (C3 and above) received variable pay based on the performance of their respective business units.
The move reflects TCS’s continued commitment to reward performance, even amid global uncertainties, and comes after a similar payout pattern in the previous quarter.
Why variable pay was honoured
Despite facing macroeconomic challenges, TCS has decided to honour the quarterly performance-based variable pay.
The company’s leadership stated that while overall growth remains muted, operational discipline and business unit-specific performance warranted these payouts.
For many employees, especially in delivery and operations roles, the consistent performance and cost control led to this reward.
Variable pay, often linked to immediate performance metrics, is easier to manage than fixed annual hikes and allows the company to remain agile during economic fluctuations.
Why salary hikes are on hold
While the variable pay decision brings some cheer, the news that annual salary hikes are on hold has raised questions among employees and analysts.
According to TCS Chief Human Resources Officer Milind Lakkad, the company has not yet decided on salary increases for the financial year and will review the situation later.
Several reasons contribute to this cautious approach.
Firstly, global macroeconomic uncertainty continues to weigh on the demand for IT services. Clients in key markets like the US and Europe are deferring discretionary technology spends. Projects related to transformation, cloud migration, and digital adoption are being reprioritized or delayed, affecting revenue visibility.
Secondly, TCS financial performance has shown signs of strain. The company posted only a modest 1.3% year-on-year revenue growth for Q1 FY26, with constant currency revenue declining by 3.1%.
In dollar terms, revenue has dropped for three consecutive quarters, reflecting a challenging demand environment. These results naturally impact the company’s ability to commit to large-scale salary increases.
Thirdly, TCS is facing margin pressures. Wage hikes typically dent operating margins by 150 to 200 basis points. In a low-growth environment, where the company is already battling declining utilization rates and an increased headcount of over 613,000 employees, any additional costs could strain profitability further.
Leadership’s stance and employee sentiment
TCS CEO K. Krithivasan and CFO Samir Seksaria have both acknowledged the slowdown in discretionary spending and emphasized the need for financial prudence.
The leadership team has assured that the salary hike decision has only been deferred, not canceled, and will be reviewed depending on how demand evolves in the coming quarters.
For now, while employees are reassured by the full variable pay payout, many await clarity on when the delayed salary increments will be implemented.
The company is expected to revisit the hike decision later in FY26, depending on global economic conditions and a potential pickup in client spending. Until then, financial conservatism remains the guiding principle.
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