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Tuesday, July 30, 2013

IT Industry - set variable component proportional to (USD rate+proj profit margins)

IT industry is the only bright spot if we see rise of Indian economy over last 5-6 years, rest I don't think there is any other sector which stands apart barring maybe we can say auto sector where India is trying hard to become hub for small cars(but that still has long way to go). The Indian IT sector has shown the nation and the government "power of general class". Since government is playing vote bank politics by giving reservations and killing competition(which is infact even more important in rising of good breed of officials and bureaucrats).

With no reservations at all and jobs based on merit and knowledge, IT industry has shown the nation and political class the power of general class. With good salary packages to performing individuals it has been truly competitive economic sector. Other advantage with the IT sector is it's billing model, as it bills the employees in USD's but pays in INR, thus the IT companies enjoys high profit margins, and this rises when rupee value falls in international markets.

In this post actually I thought of why not Indian IT companies change their compensation model where variable component of an employee should vary with exchange rate of US dollar and project profit margins. I think this would help in bringing even more competitiveness in employees for making project rating better in order to increase their variable component and thus their take-home. Their are/mightbe limitations for this billing model with respect to daily exchange rate fluctuations, but for that case we can see the average for a quarter of year or the variable pay cycle applicable(so that employees might not feel cheated or underpaid). This model would raise the work done by the payroll department though.

Also read: Fundamentally weak Indian economy

So in this way of calculating employee compensation I come to following formula:
So employee Compensation = fixed compensation(80%) + variable part{(proj profit* USD rate/project employee strength) + (employee client feedback)}
Does it make sense?
Presently employee variable is not affected by prevailing rate hence margins of IT companies rise even with lesser number of new projects, buit employee feels cheated over forex gain made by the IT company. What do you think about this model? leave your comments for in favour or not so good model, or flaws which might come in practical use.