TCS cuts bonuses to 60-70% as AI spending pressures margins
What's the story
Tata Consultancy Services (TCS) has reportedly slashed the average quarterly variable pay for certain mid- and senior-level employees to 60-70% for the April-June quarter. The decision comes as the IT giant grapples with margin pressure while continuing to invest in artificial intelligence (AI) capabilities. Employees in these job bands received an average of 60-70% of their eligible variable pay during Q1, according to Moneycontrol.
Pay history
Variable pay higher than previous subdued payouts
The latest payout is still significantly higher than what employees in these bands received during a previous period of subdued payouts.
For nearly two years until Q1FY26, the average variable pay for mid and senior-level employees was in the 20-40% range.
One senior employee told Moneycontrol, "My variable pay was deducted by 30-35% this quarter. It's lower than last quarter."
Margin pressure
Weaker margin performance in latest quarter
The change comes as TCS reported a weaker margin performance in its latest quarter, with an operating margin of 24% in Q1. This was a sequential decline of 130 basis points.
The June quarter typically includes the financial impact of annual salary increases. TCS reportedly said these increments reduced margins by 170 basis points during the quarter.
Investment strategy
TCS not looking at margins in isolation: CFO
TCS's Chief Financial Officer Samir Seksaria has said that the company is not looking at margins in isolation and will continue investing in areas that can drive long-term growth.
"As we have demonstrated in the past, our approach is to not optimize margins in isolation, but to invest in capabilities that strengthen our long-term competitiveness while continuing to deliver industry-leading profitability and return ratios," Seksaria said during the company's July earnings call.
Policy changes
IT industry navigating uncertain demand environment
The IT industry is currently navigating an uncertain demand environment, with companies also assessing how quickly AI could disrupt traditional technology services.
For TCS and its peers, investing in AI-related capabilities is becoming a key part of their strategy. However, this can drive up costs at a time when growth in traditional tech services is under pressure.
Notably, TCS has linked its quarterly variable pay to office attendance since Q1FY25.