EVA and Compensation Management System at Tata Consultancy Services
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Case Details:
Case Code : HROB075
Case Length : 14 Pages
Period : 1998-2005
Pub. Date : 2005
Teaching Note :Not Available
Organization : Tata Consultancy Services
Industry : Information Technology
Countries : -
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HROB075) click on the button below, and select the case from the list of available cases:
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"The power of EVA is not simply the potential for staff to share the wealth creation with shareholders and to align long-term interest. It is more importantly a mindset change towards ownership, and is really a strategic tool to empower staff at all levels, releasing and multiplying their energies." 1
- Ho Ching, Executive Director and CEO, Temasek Holdings2 in February 2004.
"The 'economic value added' model that we follow at TCS ensures that the compensation packages of our employees are determined by the value they bring to the organization. The more they deliver, the more are their rewards."
- Tata Consultancy Services, Careers.
Introduction
During the first quarter of the financial year 2005-06, about 1000 employees whose performance was not up to the mark were asked to leave Tata Consultancy Services (TCS), the largest IT company in India. HR experts believed that this decision was based on the implementation of the EVA3 based model for assessing employees' contributions, at the company.
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The first two year cycle of EVA had just been completed when the retrenchment decision was taken. Those who were asked to leave had obtained low ratings in their performance appraisal for two consecutive years, despite being under mentorship. At a time when IT manpower was in short supply and IT and BPO companies were going out of their way to reduce employee attrition, TCS's decision to retrench employees made headlines in several Indian news dailies. On April 19, 2005, TCS announced its annual results for the fiscal 2004-05. The company declared total revenues of US$ 2.24 billion and net profit of US$ 0.51 billion. TCS
had been the first Indian IT company to achieve the US$ 1 billion revenue
milestone in the fiscal 2002-03.
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It continued its success story when it became the first
Indian IT company to earn revenues of more than US$2 billion per annum.
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S. Ramadorai (Ramadorai), CEO & Managing Director of TCS commented, "Consistent with our position as the pioneer of the Indian IT industry, TCS is proud to be the first IT Company to cross the two billion dollar milestone. Through our strategic initiatives we have managed to double our revenues in the last two years. We are alive to the challenges facing the industry and are geared to enhance our leadership position."4 TCS aimed at earning revenues of US$ 5 billion by 2010. The EVA compensation model was used as a basis for giving incentives to employees and the bonus declared was a part of improved EVA achieved. In the EVA model, the components of fixed and variable pay were determined. Fixed pay comprised of wages and pension while the variable pay had components like bonus, profit sharing and stock options. |
EVA and Compensation Management System at Tata Consultancy Services
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