A few years ago, Mohandas Pai, a former CFO of Infosys tweeted saying that Infosys, Wipro and others had kept freshers’ salaries low. 

How does that news make you feel? Angry? I mean, poor kids that joined these companies as freshers and were being shortchanged while top management salaries had doubled. How unfair!

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But let’s dig a bit deeper. First lets talk about the freshers.

At Infosys, after recruitment, all freshers are put through a 6 month training program in computer programming. After training, most freshers are on bench for a couple of months before being deployed onto live projects. And even after joining a project, they take a few months before becoming fully productive.

So for almost a year, the company is building human capital by teaching these freshers programming skills, organinzational skills like working in teams and communication skills etc. So while a fresher may receive Rs 3 lakhs in salary, the company would have invested about 5 lakhs on him/her in building human capital without any returns. 

Also, think about of the field of Information Technology. IT is changing the world! We are talking of a future filled with driverless cars and intelligent machines. And every year, Billions of dollars are invested in the next big thing.   

Now, let’s talk about the CEO.

In a year, Infosys earns about approximately $10 B (or Rs 75,000 Crs). If Infosys grows by 5% in a year, that is $500 M in incremental revenue. Now, is it so bad to pay your CEO $5 M in salaries and perks, if he can deliver an incremental $500 M in sales? On the other hand, if the revenue growth was 6% instead of 5%, that would be an incremental revenue of $600 M instead of $500 M. In such a case, is it so bad to pay your CEO $ 10 M (double over the previous scenario) if he can get you an additional $100 M in revenue (over previous scenario)? 

In other words, would we rather have $495 M ($500 – $5) in incremental sales or $ 590 M ($600 – $10)? Of course we would want $590 M and therefore we shouldn’t grudge the extra salary.

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So you have a fresher on one hand, where a lot of investments are going in in building valuable human capital. And on the other hand, you have the CEO who is already productive and has to deliver Millions/ Billions in revenue.  One is a sapling and the other is a fully grown fruit bearing tree.  Are the two really comparable?

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Now, tell me, is it so unfair to expect a young man/ woman to undergo a few years of low salaries when he or she is building up such valuable human capital? And is it so unfair to pay the CEO such high salaries?

The media presented only one fact (salaries) and not the complete picture and therefore distorted our opinions. I am sad that an ex CFO who is infinitely smarter than me didn’t look beyond the sensationalism.

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You may say, all this “human capital” stuff is all nice and warm to read. Does this stuff work? 

Yes, it does and I have seen the benefits first hand! My cousin passed out with an Engineering degree but was without a job for nearly 2 years. And then by luck he got recruited as a fresher at Infosys. He was trained in coding and shortly after that he was on a project and worked there for 3 years. Salaries at entry level are barely anything at IT services, yet the human capital (skills in programming and work experience) kept building up. After three years he went to the US for a master’s degree and is now earning a very decent salary in Silicon valley.

I ask myself, was it so unfair that he got low salaries in the beginning? Or was he trading off lower salaries for a shot at receiving some valuable human capital? On the other hand, if say because of sensationalism in the media, if Infosys and others raised salaries but recruited fewer freshers, isn’t that a loss to our society at large? 

So you see, sometimes, like an iceberg what is not visible is more important that what is visible and obvious. 

Thanks for reading!

Featured photo by Alexander Hafemann on Unsplash