Covid-2019 has shaken almost all organisations out of their comfort zones. Prime Minister Narendra Modi set the tone in announcing a 30 per cent pay cut for himself and all Members of Parliament. The message is loud and clear. All reforms and corrections have to begin right at the top and then permeate down to a particular level in the pyramid. The hardest hit are going to be the employees at the lower levels, who should be spared the brunt of a pay-cut.

Soul-searching time

The best of the organisations take tough people-related decisions when the going is good rather than when the times are difficult. These organisations are small in number. Majority of companies wake up to the reality of carrying too much flab in their systems when faced with crunch situations such as this. It is clear that several companies have managed with excess baggage and inefficiencies since business was growing and margins were robust. I remember the words of a CEO, “Every organisation should tolerate and embrace some mediocrity in the larger interest of the organisation.”

The moot question how much is “some” and for how long do we carry mediocrity and excess baggage. Downsizing and right-sizing are fancy terms often used by management experts but hardly put to effective practice. Staff cost to total revenues is a ratio that needs to be now monitored more closely than ever before. Once business opens up scrutiny of people at senior levels, it will have to be clinical in respect of remuneration and contribution. The ownership pattern of the company is irrelevant to drive efficiency and monitor costs. Reporting structures and de-layering of organisation structure to provide flexibility in decision-making will be the need of the hour.

This would naturally mean identification of redundant workforce at middle levels not adding value to decision-making. Having got used to virtual meetings sitting at home, Corporate India will surely revisit their approach to making foreign trips for business meetings when technology can effectively accomplish the same sitting at home. Several companies are also struggling to fix responsibilities when lapses and frauds take place. This is the right time to clean up cobwebs in this area.

Time has come to be ruthless in showing the door in areas of indiscipline and lapses in integrity. It is time that bankers and other lenders attach importance to the human capital part of the company they are lending to rather than focussing only on end-use of the loan and security for the loan given.

Succession planning

The Nomination and Remuneration Committee (NRC) of the Board have to deal with issues of succession on organisations. This subject in the context of family owned and managed businesses is now well understood with learnings from every reported case of success and failure. While blood is always thicker than water, in today's competitive and unpredictable world of business — merit and merit alone will succeed and no other factor will come to the rescue of under performers.

But the bigger challenge is succession for other senior positions such as head of operations, head of finance, head of marketing, etc., that form the core of Key Managerial Personnel (KMP). Back in 2010 the CEO who was 59 years old and having put in 25 years of service was mandated to search for a successor. He interviewed 48 candidates over a period of four years and found none suitable for the job and continued his position of invincibility.

Time has come now for the NRC and the Board to say — enough is enough. Jobs have to be protected no doubt but there is a crying need to de-congest companies and give room for the next in line to take over.

A 2019 report from the executive-staffing firm Crist Kolder Associates said CEOs’ average age at the time of hiring for Fortune 500 and S&P 500 companies rose sharply to 58 from 54 between 2018 and 2019. The most common age for a CEO to be hired at is 57 years, the report said. Compulsory retirement at 60 years should be seriously considered. It is also not proper that somebody over 60 enjoys a full-time job whilst simultaneously availing 50 per cent concession on railway tickets and additional 0.5 per cent interest on fixed deposits placed with banks and other institutions.

The 30 per cent pay cut announced by our PM is a clear message that senior management also have to follow suit. Along with pay cuts this is the best time to bring in retirement at 60 come what may.

Various NGOs and government agencies require hand-holding and support and time has come for people over 60 to be drafted into such initiatives. One hopes that a crisis such as this will bring in long-pending reforms in the area of human capital.

The writer is a chartered accountant

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