Professional Documents
Culture Documents
Compensation
Compensation
Abstract:
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 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.
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
During the fourth quarter of financial year (FY) 2007-2008, Tata Consultancy Services Limited (TCS), the
largest Information Technology (IT) company in India announced its plans to cut 1.5 percent of the
variable component of employees' compensation.
It clarified, however, that there would not be any changes in the perquisites of its employees. The rapid
appreciation of the Indian Rupee against the US dollar over the previous year and the imminent
recession in the US economy, which was the biggest market for the Indian IT companies, had put a lot of
pressure on Indian IT companies.
The employees' fears were compounded when TCS showed some 500 of its employees the door in
February 2008 on performance grounds.
Background Note
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...
In January 2008, the management of TCS gave a jolt to its employees by announcing its plans to cut 1.5
percent of the variable component of the total compensation of its employees. The reason cited for this
was the company's inability to meet the EVA target for the third quarter of the FY 2007-2008...