No appraisal for Zoho staffers? Sridhar Vembu cites rising AI costs, says ‘usual pay increase’ unlikely this year

Sridhar Vembu, co-founder of Zoho, said on Tuesday that employees would not receive their usual pay increase this year, citing an uncertain software business outlook, rising costs linked to artificial intelligence (AI), and a challenging geopolitical backdrop.

In a post on X, Vembu wrote, "We have cut down on our marketing budget. We have also told our employees that we cannot have our usual pay increase this year. I have apologized for not being able to avoid this."

He further said, "We will work hard to avoid mass layoffs, but the outlook for software jobs in general is grim. We have not been growing our employee count for 18 months now."

Highlighting the challenges, Vembu described the business outlook for software as "uncertain" and said AI had dramatically increased costs. He cited a fourfold rise in the prices of servers needed for data centres and rapidly growing AI usage that was driving up expenses the company was trying to control.

He added that the company was reinventing itself, writing, "We are in the middle of reinventing ourselves. The next 3-5 years will decide how our reinvention has worked."

His remarks come as technology companies restructure and expand their use of AI. A Reuters report in June quoted Tata Consultancy Services (TCS) chairman N Chandrasekaran as saying that IT companies were likely to reduce hiring as they worked towards a workforce comprising equal numbers of human employees and AI agents. His comments reflected mounting investor concerns about AI’s impact on India’s $315-billion IT sector, which has traditionally relied heavily on human labour. Hiring in the industry, one of India’s largest sources of private-sector employment, has also slowed amid weaker client demand and geopolitical uncertainty.

Meanwhile, TCS announced on Monday that 80% of its future hires would have digital and AI skills, according to a PTI report. Chief Operating Officer (COO) Arathi Subramanian noted, "Of the 4,500 that we have added in Q2, I would say safely 25 to 30 per cent are pure AI and total about 80 per cent is new age."

Last month, IT services giant Infosys also announced plans to move a significant share of its workforce into specialist roles. According to a report in The Economic Times, the company planned to transition between 25% and 33% of its 3,20,000 employees, roughly one lakh, into specialised roles and aimed to build a team of around 6,000 frontier engineers. The company, valued at $20 billion, is navigating a major technological shift in the IT industry. Despite the challenges, it has ruled out workforce layoffs while pursuing growth through AI.

Vembu’s remarks highlight the pressure on software companies to manage rising costs while reshaping their businesses and workforces around AI.

Swati Gandhi is a digital journalist with over four years of experience, specialising in international and geopolitical issues. Her work focuses on foreign policy, global power shifts, and the political and economic forces shaping international relations, with a particular emphasis on how global developments affect India. She approaches journalism with a strong belief in context-driven reporting, aiming to break down complex global events into clear, accessible narratives for a wide readership.<br><br> Previously, Swati has worked at Business Standard, where she covered a range of beats including national affairs, politics, and business. This diverse newsroom experience helped her build a strong grounding in reporting, while also strengthening her ability to work across both breaking news and in-depth explanatory stories. Covering multiple beats early in her career has helped her be informed about her current work, allowing her to connect domestic developments with wider international trends.<br><br> At Live Mint, she focuses on international and geopolitical issues through a business and economic lens, examining how global political developments, foreign policy decisions, and power shifts impact markets, industries, and India’s strategic and economic interests.<br><br> She holds a Bachelor’s degree in English (Honours) from the University of Delhi and a Master’s degree in Journalism and Mass Communication from Guru Gobind Singh Indraprastha University. Her academic training has shaped her emphasis on precision, analytical rigour, and clarity in writing. Her interests include global political economy and the intersection of geopolitics with business.<br><br> Outside work, Swati focuses on exploring her passion and love for food. From fancy cafes to street spots, Swati explores food like a true foodie.

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