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.
TCS was established in 1968 with its headquarters in Mumbai. It was formed as a division of Tata Sons Limited (TSL), one of India's largest business conglomerates, and was called 'Tata Computer Center.' F C Kohli (Kohli) was appointed as the first General Manager in 1969. Soon after, the division was renamed Tata Consultancy Services (TCS). During its early days, TCS, with a staff of 10 consultants and 200 operators, undertook IT consulting assignments with other Tata Group companies. For instance, it managed the punch card operations of Tata Iron and Steel Company (TISCO)
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. Despite being rated as one of the top IT employers in India, however, TCS had drawn criticism for its compensation structure.
According to the employees the salaries were not on a par with the industry standards. TCS was also under pressure to follow the Employee Stock Options (ESOP) schemes followed by its competitors. ESOPs had emerged as one of the most powerful tools for retaining employees.
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. The announcement came soon after TCS found it unable to achieve its Economic Value Added (EVA) target for the third quarter of the FY 2007-2008. The unprecedented move by TCS caught the entire IT Industry by surprise he EVA payment made in advance for the third quarter was to be deducted from the variable salaries in the fourth quarter. The variable component of the salaries of the TCS employees constituted 30 percent of their total compensation, and even went up to 40-50 percent in the case of senior management. The decision came as a shock to many employees and the media gave wide coverage to TCS' decision The employees' fears were compounded when TCS showed some 500 of its employees the door in February 2008 on performance ground
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.
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.
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."
Questions
- 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.
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