Financial Daily from THE HINDU group of publications
Friday, Oct 17, 2003

Port Info

Group Sites

Opinion - Manpower

India Inc, getting lean and nimble

No longer is VRS a bad word. As much as it has made corporates, banks and PSUs leaner and nimbler, it has also enriched the retirees. And, contrary to the perception that VRS means job erosion, it has made for continuous job enrichment. A Business Line study on the dynamics of VRS.

VRS, or voluntary retirement scheme, used to be a sensitive subject in Corporate India. The negative connotation attached to the term, mainly the loss of a well-paying job, overshadowed its positive implications for companies. So much so that the very mention of the VRS acronym was enough to raise the hackles of labour and employee unions. Not anymore. Corporate India has cut jobs with élan in the last few months and, interestingly, the response from employee and labour interests has been favourable.

A quick study of the manpower profile of 30 of the top Indian companies illustrates that India Inc's VRS effort has met with a fair amount of success. The top 30 companies have shed almost 90,000 jobs in the last 3-5 years and the total outgo on VRS incurred by them is a whopping Rs 4,000 crore. And this does not include the major companies of the Tata and Birla groups that were shy to reveal the numbers.

For instance, just three banks — SBI, Bank of India and Punjab National Bank — have between them offloaded about 43,000 employees since 1997.

The engineering sector, after feeble attempts at VRS, and with instances few and far between, has consolidated the process and is looking slimmer and nimbler now. The telecom and oil companies, though still trying to find that perfect manpower profile for themselves, have managed to shed the `difficult flab'.

The numbers look attractive. But are companies breathing easier? Has the experiment paid off as expected? How many jobs have actually been scrapped from the employers' registers and how is Indian Inc coping with the new situation? A SWOT analysis is difficult, but obviously employees in both managerial and shop-floor cadres have opted for the scheme, making the pattern unpredictable. The VRS expenditure too backs this assumption. By far, the PSU banks have made the largest payouts. Most of them have implemented the trimming programme fairly smoothly: State Bank of India has offloaded more than 20,000 employees, resulting in a Rs 2,100-crore outgo in six years. Bank of India, which had a staff strength of 51,000 in 2000, now has 43,000 employees and incurred a VRS expenditure of Rs 855 crore.

The engineering and auto companies have not been as generous as the banks. Several PSUs too made an effort to shake off the `white elephant' image. BHEL, through three VRS programmes, cut down staff strength by 15,057 in five years. BEL shed 1,900 people during the period. ONGC tried the exercise and retired 3,000 employees. Neyveli Lignite Corporation attempted VRS twice and 2,917 employees have left, at a cost of Rs 82 crore to the company. IOC retired 1,903 employees at the cost of Rs 250 crore and it incurs a recurring cost of Rs 72 crore per annum.

In the private sector, names that pop up in the VRS list belong to the engineering and auto sector: The country's largest two-wheeler manufacturer, Bajaj Auto, has till date offered four VRS schemes for its staff and two such for its workers, and in the attempt has compacted its employee strength by 9,384 (21,373 in 1997 to 11,889 in August this year), resulting in a Rs 70.6 crore reduction per annum in the wage bill.

The obvious goal of increase in productivity has been reached. Says Mr Madhur Bajaj, vice-chairman: "Productivity has gone up significantly in the last few years, from the level of 67.7 vehicle per employee/per year to the level of 113 vehicle per employee/year in the year ended March 2003 and we are hoping we can better this in the years to come."

Maruti Udyog reduced manpower by 1,050 through a VRS implemented in the 2001-02 fiscal. This cost the company close to Rs 65 crore. But look at the benefits: Today, MUL has 4,590 people and rolls out 3,59,960 cars (as on March 2003) while in 1995, about 4,840 employees brought out only 2,06,330 cars. Though the exit option was more widely accepted by the shop-floor workers, a few managers too took up the offer.

The study also reveals that South-based companies have, by and large, had smooth VRS-and-after experiences. Ashok Leyland, for instance, achieved a substantial reduction in manpower through three VRS programmes — one every year from 2000. It was lighter by nearly 2,755 people after these severance programmes, which cost the company Rs 72 crore. As a result, the Ashok Leyland employee strength has scaled down from 14,635 in 1997-98 to 11,860 in 2002-03.

The company sees gains from the VRS, not only in terms of wage costs, but also in "tackling redundancies caused by changes in market requirements and the accompanying technology changes." In fact, wage costs increased from Rs 184.67 crore in 1997-98 (when the company produced 31,547 vehicles) to Rs 290.64 crore last year (when the production was 36,444 vehicles). An open severance scheme is another popular model followed by some companies such as TVS Motor Company. Mr Venu Srinivasan, Chairman and Managing Director, explained the benefit of the company's VRS. Employees who may have run up a sizeable personal debt sometimes opt for a golden handshake. They use the money to pay back the loans and then take up another job, maybe for a lower salary. But because they save by not having to pay interest on their loans, their overall income only goes up with the second job.

Among the engineering companies, Cummins India, Bharat Forge, Engineers India and Thermax have offered the VRS. And there is a good mix of managers and workers going in for it.

The country's largest engine manufacturer, Pune-based Cummins India, aggressively cut flab in two separate VRSs spread over the last two years. From the level of 2,346 employees five years ago, the strength now is a leaner 1,938 (including natural retirement plus new recruitment) employees. Three hundred and four employees, across all categories including shop-floor staff, managers and associates, opted for the VRS, for which the company spent Rs 14.5 crore.

As per published reports, Bharat Forge had compressed its total staff strength by 964 employees in 2000-01, when it had 2,865 employees on the rolls. By March 2002 it had further come down to 2,521 employees.

Environment and engineering company Thermax offered VRS to its staff in August 2001 and to its workmen in November 2001. A total of 237 staff and 183 workmen left, with the company paying out Rs 17.40 crore for the scheme. Employee strength at Thermax is now 2,142 from 3,526 five years ago. Engineers India spent about Rs 53 crore to retire 811 employees.

For Neyveli Lignite Corporation, which has a staff strength of over 19,000 people, a 2,900-odd employee reduction at a cost of Rs 79.74 crore may seem small. NLC's Director (Personnel), Mr R. Narasimhan, explains that the main benefits to the company from the separation schemes were proper deployment of manpower, resulting in productivity increases. Incidentally, NLC closed down its loss-making fertiliser unit, which employed about 2,500 people.

While BPCL is awaiting approval of its first VRS from the Government for the last three years, it has tightened recruitment policies. This alone has resulted in reducing its employee strength by 176 to 12,494 between 1999-00 and 2002-03. HPCL too is in a similar position and is responding by not filling in vacancies after employees retire. It has managed to shed 263 jobs by the natural process of attrition.

IPCL came up with a VRS three years ago but it fell flat. The reason: It offered employees 45 days salary for every completed year or the remaining period of service, whichever was lower.

The scheme had only 60-odd takers. However, in the first half of this fiscal alone, the newly privatised IPCL, under the management of the Reliance group, has shed 1,800 jobs with a total payout of Rs 131 crore. Reliance Industries itself shed 1,700 jobs in the first half of this fiscal at its Patalganga and Narora plants. Reliance's outgo so far on this account has been Rs 107 crore.

VSNL, on the other hand, got a good response to its second VRS, which closed on July 14 this year. More than one-third (about 950) of its employees — a mix of executive and non-executive staff — opted for early retirement. And the payout worked out to about Rs 97 crore.

With an average spend of Rs 6-7 lakh on each exiting employee, is it a smooth process across companies? Says Mr Thomas Abraham, General Manager, Corporate Communications, Ashok Leyland: "Implementing VRS involved relocating and redeployment of the existing employees and we gave them the benefit of re-learning. Job rotation — not normal on shop-floors — yielded the residual benefit of multi-skilling."

Ashok Leyland followed an approach akin to moral suasion. An individual data-sheet that captured all the benefits was given to every interested employee, which he could take home, discuss with his family and make an informed decision. Every step to make the process as painless as possible was taken — the company went beyond the mandatory requirements and continues to offer medical (both domiciliary and major medical cover) and insurance benefits for optees till they turn 58.

"To give them a sense of belonging even after they left, a copy of the in-house journal is mailed to their residences," says Mr Abraham.

Mr Vinod Dasari, Joint Managing Director, Cummins India, states that they managed the VRS without trouble with employee unions. That's because during the period when VRS was offered, the company roped in financial and social counsellors to talk with employees and, in some cases, with their families.

They were advised on how to deal with life after early retirement. "There is often a social stigma associated with VRS but at CIL we sent them away with a great retirement party and the message that they are the ambassadors of the company. They were not being kicked out since they had volunteered to take retirement."

Among those who opted for the MUL VRS, many people started their own Maruti service stations, while some chose to work with the company's dealerships. Yet others set up PCO booths.

Commenting on this great Indian experiment, Mr S. D. Tyagarajan, former General Manager, (Personnel and Admin), SAIL, says: "When I opted for the VRS in October 1999, it seemed quite an attractive package. But it is no longer so. If a VRS optee has taken up a monthly income scheme, he has to pay income-tax on his entire future earnings now, which came as a shock for all of us."

As regards the benefit the VRS has brought to the companies, Mr Tyagarajan, who is now Dean, External Programmes at the Xavier Institute of Management and Entrepreneurship, Bangalore, is sceptical: "In most companies, talented employees confident of getting a job elsewhere quit while the mediocre ones, or sometimes those with medical problems, stayed on for obvious reasons. That defeated the cause of the programme."

With 90,000 jobs gone in about 30 companies in five years, is the danger of job erosion hitting the Indian economy? According to Mr Sharad S Patil, Secretary General, Employers Federation of India, an apex body of Indian employers, the question of job erosion does not arise at all.

On the contrary, job enrichment is taking place and, at the same time, the job market is expanding. "Just look at the banking industry. The banker is now selling credit cards, a wide range of loans and other financial products, is using information technology and is a salesperson too."

He quotes the instance of the entertainment industry, where mega serials employ more than 1,000 people on the sets. The BPO industry, of course, is on the threshold of a major boom. "Even the Government has said that the number of jobs has gone up despite VRS. And, in real terms too, wages have gone up."

(Compiled by Anjali Prayag, with inputs from all Business Line bureaus.)

Article E-Mail :: Comment :: Syndication

Stories in this Section
On a new flight path

Are balanced funds value enhancing?
In the cradle of anarchy
Stop the rot
India Inc, getting lean and nimble
Cancun failure is nobody's gain
Prosecution for cheque bouncing — Where does the nominee director stand?
Divestment worries
Electricity sector

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | Home |

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line