The Hindu Business Line : Staff performance, productivity matter: TCS

Chennai, Feb. 6 Tata Consultancy Services has been in the news recently for its decisions to deduct a portion of employees’ variable pay and to terminate the employment of 500 junior employees. Business Line spoke to Mr S. Mahalingam, Chief Financial Officer of the company, who was on a personal visit to the city. Here’s his take on the two issues, among others.

What is the buzz around 500 employees being asked to leave?

You must get the context right. TCS has over 1,08,000 employees. We have made offers to 28,000 till now this fiscal and will meet the target of 32,500 by March 2008. Five hundred is less than one per cent. You must also understand that this has nothing to do with the external environment.

Sending out 500 people is not going to make my margins better. That is not the point. In this industry, people are a critical resource to us. We recruit and train people since they are the ones who face the customer. We help our people meet their career objectives. We train them and hence have a stake in their careers. But at the same time, we cannot become a paternalistic organisation.

Is it the norm to have so many people leave the organisation, especially in the IT industry?

I can speak for us. In earlier years, the exits used to be about a hundred. But our manpower size has increased significantly.

We have a process that measures performance consistently. There has been a little more of a push of late to become performance-oriented. In my opinion, a healthy involuntary attrition (i.e. companies asking employees to leave on the basis of poor performance) should be about 1 or 2 per cent.

What is the reason for your decision to stop paying 1.5 per cent of salary as variable pay to employees?

Again, this has nothing to do with the external environment.

We have equalled or even exceeded external expectation. Internally, we have set benchmarks for ourselves, especially in the context of economic value added (EVA). We did not meet those targets.

Since the variable pay linked to company performance based on EVA is paid in advance, we decided to recover it from employees through February and March.

Perhaps a tougher external environment is impacting your ability to meet your own EVA targets?

We have done reasonably well on our average operating margins. Our revenues were Rs 6,000 crore in the December quarter. The component I am recovering from my employees is less than 1 per cent. Whatever I do on this front is significant only if the impact is 3-5 per cent of revenues. Our collections, allocating projects to people, creating revenue streams for individuals we recruit … all impact our EVA targets. Also, in fixed price projects (which contribute to more than 50 per cent of TCS’ revenues), there is an inherent need to increase productivity.

Why has Mr S. Padmanabhan moved on to Tata Power, as Executive Director, though he was ED here as well as chief of HR?

One of the things we have done in TCS, be it Mr Padmanabhan, myself or even Ram (TCS’ CEO Mr S. Ramadorai), is the enormous amount of rotation that we encourage. Ramadorai started life in the hardware industry. Mr Padmanabhan was the Chief Executive of the joint venture we had with Singapore Airlines, called ASDC. He set it up. It was not just routine operations, but he actually ran it. At the senior level, movements like this do take place. TCS has benefited from people coming from other parts of the group as well, though not at his level but in domain areas, etc. He would bring a lot of value and capability to Tata Power. These group movements keep happening periodically.

So should we expect similar moves for the remaining top 3 in TCS, namely, CEO Mr S. Ramadorai, yourself, and ED and COO Mr N. Chandrasekharan?

Obviously at those senior levels, the board level, you don’t have them (these moves) happening often.

But they have been happening. If you take key executives, you do see them move to start new corporations or move to a top level. That is what gives the group a lot of strength.

Related Stories:
TCS ‘Paddy’ moved to Tata Power as ED
TCS staff to lose 1.5% of total salary

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