BANGALORE, INDIA: The research and development (R&D) off-shoring business, once considered to be a cheaper option for MNCs to develop new software products, is perhaps, for the first time, headed for negative growth in India.

With the effect of the global economic recession being felt hard since the quarter four of 2008, growth in the sector is expected to nose-dive in 2009. As an impact MNC R&D centers are putting 'non-performers' on the firing block, have started freezing appointments and started slashing salaries across the board.

According to the management consulting firm Zinnov's 'Compensation and Benefit Study 2009', which covered a sample of R&D centers of software product development companies (MNCs) in Bangalore, Chennai and Pune, already about 5 -10 percent of the engineers have already been laid-off. The survey report, which was released on Thursday, revealed that  27 percent of the respondents have admitted to salary freeze across the board. Further, this percentage is expected to increase in the coming months.

Giving details, Sahana Shetty, consultant at Zinnov, said that 12 percent of the survey participants said they have announced salary cuts either to the senior management team or across all levels. About 15 percent of of the participants said they have postponed their merit increase cycle and will take a call based on the economic scenario at a later stage.

"The pay cuts range from 5 - 10 percent across organizations. The companies are shifting focus to the variable pay component to reward and retain top performers as opposed to fixed pay and some of them have even restructured their compensation, linking employee rewards to individual and organizational results," Sahana said.

Chandramouli, director of Advisory Services, Zinnov, said: "The economic condition has undoubtedly had a very high impact on the compensation budgets of R&D organizations, and are currently being challenged to balance their need to retain key talent while responding to the economic pressures.”

According to him, many of the MNCs would be forced to cut their R&D budgets due to lack of proper sales projection for 2009. At the same time, it can be a matter of concern if the R&D centers fail to deliver value for new investments.
  
“Organizations are also being proactive in managing people cost as it constitutes to about 62 percent of the total operating cost. Additionally, the concern over soaring salaries at these R&D centers and the current economic downturn has put undue pressure to level off compensation,” he added.

Highlighting some of the compensation trends across functions like engineering, Quality Analysis, testing and technical architects, the survey reported that senior positions such as engineering manager and director (Engineering) continues to be on the rise with an average increase of eight percent as companies continue to reward high quality talent.
 
Also, while the average salary of technical architects has dipped by four percent, the same for junior positions in the engineering function has stabilized and has had a marginal increment of about one percent. Additionally, the average salary increase for the QA) function has been approximately six percent.