Case Details
Case Details
Case Code Case Length Period Pub Date Teaching Note Organization Industry Countries : : : : : : : : HROB112 18 pages 2003-2008 2008 Not Available Tata Consultancy Services Computer, IT & ITES India
Price:
For delivery in electronic format: Rs. 300; For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges
Themes
Strategic Human Resource Management/ Human Capital/ Employer Branding/Organizational Behavior
Abstract:
The case discusses the compensation management practices at Tata Consultancy Services Ltd. (TCS), one of the leading Indian IT companies. TCS' compensation management system was based on the EVA model. With the implementation of Economic Value Added (EVA)-based compensation, the salary of employees comprised of two parts fixed and variable. The variable part of the salary was arrived after considering business unit EVA, corporate EVA, and also individual performance EVA. During the fourth quarter of the financial year (FY) 2007-2008, TCS announced its plans to slash 1.5 percent of the variable component of employee salaries since its EVA targets for the third quarter of FY 2007-2008 were not met The announcement came as s jolt not only to TCS employees but also to the entire Indian IT industry. The company came in for severe criticism and it was accused of not being transparent with respect to EVA calculation. However, some analysts felt that the pay cuts were a result of the macroeconomic challenges that the Indian IT companies were facing -- rapid appreciation of the rupee against the US dollar and the recession in the US economy (USA was the largest market for the Indian IT companies)
Issues:
Analyze TCS' HR practices with respect to its policy related to compensation of its employees. Discuss various concepts related to compensation management. Discuss the importance of variable compensation in light of its ability to motivate employees and enhance organizational productivity. Discuss the pros and cons of the EVA-based compensation management system and also analyze EVA as a performance measurement tool. Understand the rationale behind the cut in the compensation of the employees at TCS. Understand how macroeconomic variables could affect a company's HR policies. Appreciate the importance of HR goals and strategies in the success of an organization
Contents:
Page No. 1 2 4 5 6 8 10 11 13
Squeezing the Employee Pay Packets Background Note The HR Policies Performance-Linked Salary Structure TCS Announces Pay Cuts The Reasons The Debate Outlook Exhibits
Key Words:
Compensation management, EVA, Variable compensation, Fixed pay, Wage inflation, Human resource, Employee Stock Options, Performance appraisal, Employee morale, Incentives, HR policies, Recruitment, Employee satisfaction, Employee attrition, Retrenchment, Retaining, Employee training, Career development, Tata Consultancy Services, Satyam Computers, Wipro, Infosys, Information technology
There's no ceiling on the bonus. It can be equal to the fixed portion of the salary, providing the cell has shown that kind of EVA growth. It is not just compensation, we wish our employees to also get a feeling of ownership for their own unit, and its performance. We want each employee to feel as if they are running their business. They have to think like entrepreneurs and know the cost attached to their business and how will they add value to the investment." 1
- S. Ramadorai, CEO and Managing Director, Tata Consultancy Services Ltd., in 2000, Regarding its Economic Value Added (EVA)-based Compensation Management System.
"We undertake a review of variable pay every quarter and this time, we decided to make an adjustment." 2
- S. Padmanabhan, Global Human Resources Head and Executive Director, Tata Consultancy Services Ltd, in February 2008.
"This wage cut is a reflection of the caution. It reinforces the management view of macroeconomic challenges."3
- Harit Shah, Research Analyst, Angel Broking4, in February 2008.
The HR Policies
TCS gave utmost importance to its human resource function. The company viewed its employees as assets, which had to be utilized efficiently. The TCS senior management constantly kept track of the vast intellectual assets, their skill sets, the status of projects on which they were working, and the number of people available for being placed in other projects...
The Reasons
TCS cited several reasons for cutting down employee salaries. The major reason for the unprecedented cut in variable pay was its inability to meet the EVA target for the third quarter of the FY 2007-2008. The rise of the rupee against the US dollar was another
major concern for TCS. The rupee had appreciated by 12 percent against the US dollar, building tremendous pressure on the company's margins and revenues. (Refer to Exhibit IV to see how Indian Rupees rose against the dollar; and Exhibit V for how IT/ITES companies have reacted to the rupee rise)...
The Debate
TCS' move to cut employee salaries received severe criticism from some quarters. TCS' reputation as one of the topmost IT employers in India took a beating as its decision to cut salaries shocked many of its employees. Many employees even opined that TCS could have cut down on some of its other expenses instead of cutting the compensation of its employees...
Outlook
Despite TCS' claim that it would make salary adjustments in the next quarter, the employees remained divided and expected this trend to continue. A TCS employee said, "Though the official word is that the situation will be reviewed by March end, we are preparing for a regime wherein we continue with a pruned salary." Further, the pay hikes of employees in the Indian IT industry were poised to become moderate with pressure building on export earnings of Indian IT companies due to the rising rupee and signs of a slowdown in the technology spend in the US due to recession...
Exhibits
Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit I: Top IT Employers in India (DQ-IDC BES Survey 2007) II A: Employee Satisfaction Scores of IT Companies (DQ-IDC BES Survey 2007) II B: HR Scores of IT Companies (DQ-IDC BES Survey 2007) III: TCS' Position in BusinessWeek Top 100 IT Companies: 2007 IV: Indian Rupees to US$1 V: How IT & ITES Companies Have Reacted to the Rupee-rise