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Infosys to reward star performers with bonuses before year end

 Hidden innocuously in accounting entries and routine management commentary is a possible shift in the way Infosysrewards its employees. The first effect of such a shift could be a surprise bonus for best-performing employees before this year is out. And if indications are correct, Infosys is on the way to giving top performers a bigger share of the compensation pie.

That Infosys could be salting away cash for a bonus became a point of discussion during an earnings call with analysts on October 11, the day the company announced better-than-expected results and raised the lower end of its annual revenue forecast.

In the September quarter, India′s second-largest software exporter made an unusual provision - of about Rs 130 crore - to pay bonus, a move that surprised some analysts.

The management has indicated this will continue in the coming quarters. In the earnings call, Chief Financial Officer Rajiv Bansal said Infosys has to "pay employees better" if the company performs well. "We have to make sure that people who are performing well get high variable pay."

After over two years of volatility and industry underperformance, Infosys is returning to a stable growth path. The company beat analysts′ estimates in the April-June and July-September quarters on the back of renewed sales aggression and demand revival in the US, the industry′s largest market. The company also revised growth forecast to 9-10%, from 6-10% earlier.

Co-founder NR Narayana Murthy returned to Infosys as chairman in June, recalled by the board amid investor angst about Infosys losing market share to rivals. Within days of returning, he announced an unexpected wage hike and set the tone for a merit-driven culture where top performers will be well rewarded and consistent underperformers told to seek opportunities elsewhere. "Variable pay is part of the compensation structure at Infosys, and this quarter we have provided for higher payouts than the last quarter," a spokeswoman said. The company did not say when the bonus will be paid.

Salaries account for about four-fifths of the company′s costs. In the September quarter, Infosys paid $1.08 billion (Rs 6,800 crore) as wages, or more than two-thirds of revenue.

Besides rewarding outperformers, the decision to pay bonuses is seen as a strategy to raise employee morale at a time Infosys is struggling to retain talent. In April 2012, when the company lagged peers in growth, the company ruled out annual wage revision, much to the disappointment and disillusionment of its over 1.5 lakh employees. In the September quarter, Infosys reported the highest annualised attrition among peers - 17.3%, up from 15% a year ago.

"Attrition is one of the concerns we have. We are investing back into employees, we have given the wage hike, and we have changed salary structures for employees, we are paying them better variable pay," CFO Bansal told analysts in the earnings call, in response to questions on the bonus provision′s impact on margins.