Compensation Management at Tata Consultancy Services Ltd. : Coping with Turbulent Times in the Indian IT Industry 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 “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. Squeezing the Employee Pay Packets Squeezing the Employee Pay Packets Contd… The employees’ fears were compounded when TCS showed some 500 of its employees the door in February 2008 on performance grounds. Background {text:bookmark-start} 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… {text:bookmark-start} TCS Announces Pay Cuts 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… {text:bookmark-start} 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…
