Even as the general funding environment around startups continues to be uncertain in India, companies are getting creative in ways to rein in costs.
Flipkart will give out lump-sum payouts instead of salary hikes to employees this year. Employees will get two payouts — one in April and another in October — which would be equal the salary increment they would’ve otherwise received throughout the year. Around 20,000 Flipkart employees would receive these payouts instead of salary hikes.
“At Flipkart, we have always prioritised what’s right for both our employees and the organisation at large, and this compensation review cycle is in line with this intention. We are providing compensation increases to employees getting promoted, merit-linked payments and bonus payouts. Additionally, our stock option allocation exercise will continue as is, for those who are eligible,” Flipkart said in a statement.
Flipkart, though, will continue to give regular increments to employees who were promoted. The company will also roll out 100% bonuses to all its employees this year.
But giving out a two-time payment instead of a salary increase enables Flipkart to keep its fixed costs down in coming years. The payout will also enable the company to give smaller salary increments next year — as employee salaries will be the same as they were two years prior, Flipkart will be able to give a smaller hike over the two year period than it would’ve otherwise have had to had it formally increased salaries. There have been other indications that Flipkart has been looking to cut costs — it had planned to lay off over 1,000 employees in January, which amounted to 5-7 percent of its workforce.
And giving out lump-sum payments instead of salary hikes is a novel — and creative — idea for companies to cut costs. Employees wouldn’t be overly disgruntled in the short term, because they will receive the same amount of money that they would’ve received this year, but will likely evaluate their options about staying on for another year. The decision also allows Flipkart to not take the difficult decisions of layoffs this year, and enables it to kick the can down the road to a later date. It remains to be seen how the move plays out, but with India’s largest tech company taking a stand on lump-sum payments, other startups, big and small, could end up following its lead.