Compensation Management at Tata Consultancy Services Ltd.: Coping with Turbulent Times in the Indian IT Industry

The announcement came soon after TCS found it unable to achieve its Economic Value Added (EVA) target for the third quarter of the FY 2007-2008. The unprecedented move by TCS caught the entire IT Industry by surprise.

The EVA payment made in advance for the third quarter was to be deducted from the variable salaries in the fourth quarter. The variable component of the salaries of the TCS employees constituted 30 percent of their total compensation, and even went up to 40-50 percent in the case of senior management. The decision came as a shock to many employees and the media gave wide coverage to TCS' decision.

Established in 1968, TCS was the market leader among the Indian IT industry as of 2008. Its revenues for the third quarter of the FY 2007-2008 increased by 5.04 percent to Indian Rupees (Rs.) 59.24 billion and net profit rose by 6.72 percent to Rs. 13.31 billion.⁵

In the wake of the appreciating rupee and signs of recession in the US economy, TCS decided to cut salaries since the company's margins were severely impacted. According to S Mahalingam (Mahalingam), Chief Financial Officer (CFO), TCS, "Fundamentally the business operates on sound principles...