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Kripa Raman

Some software companies have decided that service bonds are the only means to get adequate return on the time and money invested in training fresh recruits.

A SOFTWARE engineer, about a year into her first job at a Mumbai company, hates her workplace ever since the HR department ruled that women workers could wear only "decent Indian clothes" to work.

But leaving would mean breaking the bond she has signed with the company, and that would set her back by about Rs 75,000. She, instead, prefers to stay on for another year. This woman's situation merits sympathy, says the HR head of another software services company. But he has no such feelings for the employee who leaves for a better job, which is more often the case. "The engineer has to wait out his bond period with the company that has put in so much to train him," he says by way of explanation.

The bond system for employees in software companies seemed to have been given a fair burial a few years ago. But that was when software companies had fallen on bad times and hiring was at an all-time low. Now that opportunities are aplenty, attrition rates are up again and the bond system is reappearing. Employers do appear to mean it when they say the bond system exists only to ensure they get some return on the company's investment in training. The bond is largely imposed only on trainees or fresh recruits, and not on senior employees or lateral hires. "Indeed, we do not get returns even if the bonds are enforced; it merely ensures that there is no negative return, and that there is some deterrent to employees' leaving," says a senior official at a large software company. "Moreover, when we send a recruit overseas, they often have to return airfares etc., if they quit soon afterwards."

At Infosys Technologies, fresh recruits sign a one-year service agreement at the time of joining, says a company statement. "Infosys hires from all streams of engineering and, on joining, the fresh graduates go through an extensive 14.5-week training programme with an objective of transforming engineers to software professionals. The company invests significantly in physical and knowledge infrastructure, programmes, processes and systems. Infosys expects the new hires to come in with long-term commitment."

Infosys says this system, which was introduced in 1992, has worked effectively. "It is a permanent policy which does not undergo change based on availability/ unavailability of resources," says the company statement.

The bond system for freshers is followed by the biggies such as Infosys, Wipro and TCS. "This stands to logic. These are companies which hire in thousands every year and therefore invest significantly in training; they stand to lose the most as well," says an industry analyst.

Straining at the `bond'

The term `bond' appears to have rather negative connotations, suggesting bonded labour, therefore many companies have discarded its usage. Tata Consultancy Services says it has "service agreements that the company and the candidate agree to abide by."

This provision is applicable only for trainees and not experienced professionals who are hired laterally: "The period is restricted to two years and the trainees become convinced that it is a fair practice considering the amount of effort and time invested by the company in training the new recruits and adding value to their profile, before they are ready to deliver in projects. In case the trainee wishes to separate before the agreement period, there is the option to pay a token amount not as a penalty, but as a small compensation for the efforts put in by TCS, and depart gracefully.

"We do not use this provision as an anti-attrition measure. Such a policy for experienced professionals, wishing to opt for a career at TCS, would prove to be counter-productive. Our trainee attrition is very minimal. We do not perceive a direct correlation between this rate and absence/presence of service agreement for trainees. We conduct an annual internal survey on employee satisfaction. The attrition rate for our employees on Indian payroll for 2002, 2003 and 2004 was 3.6 per cent, 2.8 per cent and 6.5 per cent respectively, one of the lowest in the industry."

Not easy to enforce

And, like Infosys, TCS says its policy on `service agreement' is independent of fluctuating demand/supply conditions.

However, industry experts say it would be very difficult to actually enforce the bond. Most employees who leave before the stipulated period, do pay up. But whenever an employee resists paying up, the recovery record is quite dismal.

"We believe that for a bond to be effective you must legally demonstrate that significant training was imparted," says R. Vaidyanathan, Executive Vice-President and Global HR head, HCL Tech. His company does not insist on service bonds. "The formal training period is very short, and actual training happens on the job. You have to prove that three to six months' training has been imparted."

He feels there would be a stronger case only if the number of trainees was large enough.

"Morally we feel that we cannot have the bond system. You have to have a viable case to prove in a court of law — currently, the way we are working is not conducive to that."

According to Vaidyanathan, a fresh recruit's productivity typically peaks in 12 to 24 months. "We believe that if we put in the right challenges, most of them will stay on."

And opportunism cuts both ways, he believes. HCL weeds out opportunistic candidates at the outset, he says. "Firstly, as a company you must set an example by not being opportunistic. We were probably the only company that honoured campus commitments every time, even in 2001 and 2002, when the (industry) situation was really bad."

How does HCL eliminate opportunistic candidates? Fresh hires constitute about 20 per cent of the company's opening headcount each year. "Our experience is that when we get people from campuses, there itself we eliminate some of the opportunistic ones. But if you look at the quasi-employed, or people who want to move very soon after their recent employment, or indulge in just-in-time recruitment, then you are being opportunistic yourself and that is the kind of people you will accumulate."

However, Vaidyanathan does feel that the degree of responsibility shown by young software professionals was much lower compared to youngsters in other engineering disciplines. "There is less rigour in their approach. Partly this is to do with being spoilt with too many opportunities and also how the rest of the industry treats them, encouraging their prima donna attitudes," he says.

Cognizant Technologies does not have a bond system either, says Bhaskar Das, the company's Vice-President, Human Resources. "This comes from the belief that retention is the by-product of the commitment and motivation that individuals have in an organisation. Our endeavour has always been to increase this commitment and motivation by understanding what employees want ."

Cognizant has evolved a systemic alignment of systems and processes that integrate the individual and the organisation, thereby ensuring commitment and motivation, which, in turn, ensures that employees stay. Its annualised employee turnover has historically been 12-13 per cent, with voluntary turnover (people leaving out of their will) at 7-8 per cent and involuntary turnover (pruning of underperformers) at 4-5 per cent.

Further, a majority of employees who leave are the most junior members. "The fact that our attrition rate is among the lowest in the industry goes to show that bonds need not be the only way to retain people," says Das.

"Certain kinds of training are very costly and employers are justified in the bond system," says Vipul Varma, Managing Director, Focus Management Consultants. "But very few companies are able to enforce the bond legally," he adds. In fact, the bond means nothing unless it is backed by a bank guarantee, otherwise it would be totally dependent on the employee's word."

Picture by K.V. Srinivasan

kripram@thehindu.co.in

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