TCS jitters Industry – salary cut move. This is called Recession

The TCS move to cut the salary of the employees on falling short of its projected revenues for the quarter has taken the IT fraternity by surprise. There is a universal support building up among IT staff in the form of a web campaign condemning the move. Frenzied blogs are busy gathering support against the announcement.

Though the tactics employed by the management of Tata Consultancy Services (TCS) is perfectly legal, the sudden manner in which the decision has been implemented has caused a furore. Now, there is fear among the entire software community as to if the IT companies would take a cue from the TCS initiative and make such salary pruning a regular practice to show profits in future.

The most affected parties of the “salary adjustment” are reportedly the confirmed employees of TCS located in the US and India. These people are likely to see their paycheques lesser by Rs 10,000 during February and March 2008.

The justification for this, however, as per the company’s internal notification is: “In Q3 this year, we met our revenue target but we fell short of meeting our EVA target due to a combination of internal and external factors….. On the audited results the EVA-based variable payout amounts to Rs. 293 crore for the quarter. The actual variable payout based on expected EVA given in advance amounts to Rs. 376 crore. The advance payment that has to be adjusted amounts to Rs. 83 crore, which will be recovered during Q4 from the employees. The recovery would be reflected in your salary in the months of February and March 2008.”

“This is absolutely unfair,” decries a TCS employee who does not want to be identified. “A general announcement with no details came in on Monday evening and since we are one lakh strong organisation, even a Rs 1,000 from everyone would have easily made up for the shortage. But the steep gradation of the cut is what is very irritating,” he says.

The move by TCS is perfectly legal, defends a HR manager of a leading IT company. “Employees are well aware of the variable component in their salaries which forms the basis of they earning higher than their colleagues in the same cadre owing to a better performance. What they fail to realise is about this variation that could impact in case of such cases.” But this is an unprecedented move by any IT company in India and hence has taken a lot of people by surprise. “Though the company is perfectly valid in its claims, it is definitely not an employee-centric move,” he avers.

TCS has a variable component in the salary structure of an individual that depends on the rating that he receives on a scale of 1-5 (D-A). This component is linked to the company’s performance and metrics. This component is what is known as VA and was paid in advance for Q3. However, this will now be reduced by almost 20-25%. And this may translate up to 5% of the salary on the variable component. Generally VA is 50% of a person’s salary and increases towards top management.

Earlier, a leading financial paper had quoted the TCS executive director and global human resources head S Padmanabhan saying: “We undertake a review of variable pay every quarter and this time, we decided to make an adjustment. We will revisit it in April.”

There is fear that soon other top companies such as Infosys and Wipro too may adopt the practice owing to the appreciating rupee value against dollar. And this has resulted in blog and email campaigns mustering support against the move.

Whatever be it, the woes of TCS staff do not seem to end only with this quarter. For, there is an ominous reference in the letter saying, “In Q4, we will follow the same basis of advance payment of Variable Pay as per expected EVA projections at the beginning of 2007-08. When the audited results for Q4 are announced in April 2008, appropriate adjustment in Variable Pay will be made either upwards or downwards as the case may be.”

TCS posted a net profit of Rs 1,331 crore, up 6.72 per cent, in the third quarter of 2007-08.

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