EVA and Compensation Management System at Tata Consultancy Services

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In 1996, TCS was organized into a three dimensional model with the first dimension comprising of industry practices, which included engineering, transportation and telecom; the second dimension comprising of service practices like e-business, outsourcing, technology consulting; while global and regional operating areas formed the third dimension.

A business unit could be a part of a service, a practice, a geographical unit or a combination of all the three. Every unit was considered to be a revenue center and had its own EVA target. The units that did not fall under the purview of any of these were corporate offices and research & development, the costs of which were divided among all the units. Through EVA-linked compensation, employees could claim stakes at three EVA levels - at the organization level, at the business unit and the individual level. The individual was informed how he or she could contribute to the EVA enhancement at all three levels. EVA was controlled by revenues, capital and costs, and an individual could contribute in any or all of these areas at all the three levels...

The benefits of EVA were realized across all levels in the organization. Employees became aware of their responsibilities and their share in increasing the EVA of the unit and organization. All the units could determine how they had fared against the targets.

The bonus banks also helped in sustaining performance from the individuals, with close relationship between pay and performance. There was an increased sense of belonging among the employees and the employees were motivated to increase their contribution as they were also equally benefited by the increase in EVA. EVA was not just a performance metric but an integrated management process aimed at achieving long term goals. One of the major benefits of implementing EVA in TCS was increased transparency in the organization. The internal communication within a unit had increased considerably. The decision making process became more decentralized...

The EVA-based compensation system received severe criticism during the initial years of its implementation. Industry analysts commented that EVA concentrated mainly on return on investments, due to which the growth of TCS could be restricted. In 2003, TCS caused an uproar in the IT industry when it reduced the variable salaries of employees by 10%. This was the initial impact of EVA which was implemented in the company from April 01, 2003. The reduction in the variable salary resulted in an overall reduction of monthly take-home salary for most of its employees...

Exhibit I: Goal Setting and Balanced Scorecard Perspectives
Exhibit II: TCS - Mission, Vision and Values
Exhibit III: Components of TCS EVA Incentive
Exhibit IV: Best IT Employers in India
Exhibit V: TCS Employee Satisfaction (2003-04)
Exhibit VI: Top 15 Companies in Businessweek Information Technology 100 Rankings (2005)