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COMPENSATION MANAGEMENT AT TATA CONSULTANCY SERVICES LTD: COPING WITH TURBULENT TIMES IN THE INDIAN IT INDUSTRY
Reference no. 408-078-1
IBS Center for Management Research (2008)
The case discusses the compensation management practices at Tata Consultancy Services Ltd (TCS), one of the leading Indian IT companies. TCS' compensation management system was based on the economic value added (EVA) model. With the implementation of EVA-based compensation, the salary of employees comprised of two parts - fixed and variable. The variable part of the salary was arrived after considering business unit EVA, corporate EVA, and also individual performance EVA. During the fourth quarter of the financial year 2007-2008, TCS announced its plans to slash 1.5 percent of the variable component of employee salaries since its EVA targets for the third quarter of the financial year 2007-2008 were not met. The announcement came as a jolt not only to TCS employees but also to the entire Indian IT industry. The company came in for severe criticism and it was accused of not being transparent with respect to EVA calculation. However, some analysts felt that the pay cuts were a result of the macroeconomic challenges that the Indian IT companies were facing - rapid appreciation of the rupee against the US dollar and the recession in the US economy (USA was the largest market for the Indian IT companies). The case will help students to: (1) analyse TCS' HR practices with respect to its policy related to compensation of its employees; (2) discuss various concepts related to compensation management; (3) discuss the importance of variable compensation in light of its ability to motivate employees and enhance organisational productivity; (4) discuss the pros and cons of the EVA-based compensation management system and also analyse EVA as a performance measurement tool; (5) understand the rationale behind the cut in the compensation of the employees at TCS; (6) understand how macroeconomic variables could affect a company's HR policies; and (7) appreciate the importance of HR goals and strategies in the success of an organisation. This case is meant for students of the MBA / MS level programmes in the human resource management / organisational behaviour curriculum. The teaching note includes the abstract, teaching objectives and target audience, teaching methodology, assignment questions, feedback of case discussion, and suggested readings and references. It does not contain an analysis of the case.