Project Report on Performance Managment Submitted toProf.Snigdha Patnaik Performance Appraisal System in TCS Submitted By:Auronil DuttaRoll No.

8,PGDM (3 Year) (2007-2010)XAVIER INSTITUTE OF MANAGEMENT,BHUBANESWAR

Tata Consultancy Services Limited (TCS) is the world-leading information technologyconsulting, services, and business process outsourcing organization that envisioned and p i o n e e r e d t h e a d o p t i o n o f t h e f l e x i b l e g l o b a l b u s i n e s s p r a c t i c e s t h a t t o d a y e n a b l e companies to operate more efficiently and produce more value.They commenced operations in 1968, when the IT services industry didnt exist as it doestoday. Now, with a presence in 34 countries across 6 continents, & a comprehensiver a n g e o f s e r v i c e s a c r o s s d i v e r s e i n d u s t r i e s , t h e y a r e o n e o f t h e w o r l d ' s l e a d i n g Information Technology companies. Seven of the Fortune Top 10 companies are amongour valued customers.They are part of one of Asia's largest conglomerates - the TATA Group - which, with itsinterests in Energy, Telecommunications, Financial Services, Chemicals, Engineering &Materials, provides us with a grounded understanding of specific business challengesfacing global companies.As we move into an era of e-business where IT professionals will interview employers sos t r i n g e n t l y t h a t 4 0 p e r c e n t e m p l o ye r s w i l l m i s s r e c r u i t m e n t g o a l s ( s o u rce: Gartner Group), the role of HR assumes unthinkable proportions a n d i s s u b j e c t t o m a m m o t h challenges. With this sensitive breed of IT professionals, how has TCS grown to andsustained at the number one position is a question which market watchers have askedthemselves a thousand times. There is but one answer - passion for excellence in theworkforce practices. TCS has developed an unbreakable bond with sound HR practices inan environment that defies traditional roles and responsibilities.The TCS-HR group operates with technical experts to create a synergy which is enviable.Figure 1 illustrates the role of HR, which evidently is that of a facilitator. So whether it isr e c r u i t m e n t o r e v e n c a r e e r d e v e l o p m e n t , H R i s t h e c a t a l y s t w h i c h i n i t i a t e s a n d institutionalizes processes. To manage all the functions for over 14000 employees is aHerculean task but the smoothness of operations is intriguing. The HR structure, whichallows flexibility and empowerment, is the solution

The five stages of the People CMM framework are: P-CMM - Initial Level (Typical characteristics: Inconsistency in performing practices,Displacement of responsibility, Ritualistic practices, and Emotionally detachedworkforce). P-CMM - Managed Level (Typical characteristics: Work overload, Environmentaldistractions, unclear performance objectives or feedback, Lack of relevant knowledge, or skill, Poor communication, Low morale) P-CMM - Defined Level (Although there are performing basic workforce practices,there is inconsistency in how these practices are performed across units and little synergyacross the organization. The organization misses opportunities to standardize workforce practices because the common knowledge and skills needed for conducting its businessactivities have not been identified) P-CMM - Predictable Level (The organization manages and exploits the capabilitycreated by its framework of workforce competencies. The organization is now able tomanage its capability and performance quantitatively. The organization is able to predictits capability for performing work because it can quantify the capability of its workforceand of the competency-based processes they use in performing their assignments) P-CMM - Optimizing Level (The entire organization is focused on continualimprovement. These improvements are made to the capability of individuals andworkgroups, to the performance of competency-based processes, and to workforce practices and activities. The organization uses the results of the quantitative managementactivities established at Maturity Level 4 to guide improvements

at Maturity Level 5.Maturity Level 5 organizations treat change management as an ordinary business processto be performed in an orderly way on a regular basis) A CASE STUDY ON EVA AND COMPENSATION MANAGEMENT SYSTEM IN TCS D u r i n g t h e f i r s t q u a r t e r o f t h e f i n a n c i a l ye a r 2 0 0 5 - 0 6 , a b o u t 1 0 0 0 e m p l o ye e s w h o s e p e r f o r m a n c e w a s n o t u p t o t h e m a r k w e r e a s k e d t o l e a v e T a t a C o n s u l t a n c y S e r v i c e s (TCS), the largest IT company in India. TCS had asked around 500 people to leave thecompany after the second annual appraisal it carries out, citing performancerelatedi s s u e s . B y t h e e n d o f t h e f i n a n c i a l y e a r , t h i s n u m b e r c o u l d w e n t u p t o 6 0 0 . T h e employees who were asked to leave are mostly those with 2-3 years of experience and donot include trainees because they have less than a years experience.HR experts believedthat this decision was based on the implementation of the EVA(Economic Value Added) based model for assessing employees' contributions, at the company.The first two year cycle of EVA had just been completed when the retrenchment decisionwas taken. TCS came in the news for cutting down the variable pay of employees for

slippages in internal growth targets a move that will save it about Rs 83 crore. Thismove however was unlikely to be linked any slowdown worries. This manner of forceda t t r i t i o n w a s o n l y l i n k e d t o t h e a p p r a i s a l p r o c e s s . I t w a s n o t l i n k e d t o a n y o t h e r factor.Those who were asked to leave had obtained low ratings in their performanceappraisal for two consecutive years, despite being under mentorship.It seemed to be aroutine exercise carried out bi-annually to weed out non-performers. The number of employees impacted during this year till date is 500 which constitutes about 0.5% of thecompanys employee strength of 1,08,000. In this process if an employee gets a grade of 2 o r b e l o w d u r i n g t h e f i r s t a p p r a i s a l c y c l e , t h e c o m p a n y p u t s t h e e m p l o y e e o n a performance improvement plan that includes additional training and assignments on new projects. At the end of the second appraisal if the employees ratings do not improve to agrade better than 2, the employee is asked to resign. TCS arranges for placement agenciesto help the employees get placed in other organizations though. The grades are on a scalef r o m 1 t o 5 , w i t h 1 b e i n g t h e l o w e s t a n d 5 b e i n g t h e h i g h e s t . At a time when IT manpower was in short supply and IT and BPO companies were goingout of their way to reduce employee attrition, TCS's decision to retrench employees madeheadlines in several Indian news dailies. On April 19, 2005, TCS announced its annualresults for the fiscal 2004-05. The company declared total revenues of US$ 2.24 billionand net profit of US$ 0.51 billion. TCS had been the first Indian IT company to achievethe US$ 1 billion revenue milestone in the fiscal 2002-03. I t c o n t i n u e d i t s s u c c e s s s t o r y w h e n i t b e c a m e t h e f i r s t I n d i a n I T c o m p a n y t o e a r n revenues of more than US$2 billion per annum.S. Ramadorai (Ramadorai), CEO & Managing Director

of TCS commented, "Consistentwith our position as the pioneer of the Indian IT industry, TCS is proud to be the first ITCompany to cross the two billion dollar milestone. Through our strategic initiatives wehave managed to double our revenues in the last two years. We are alive to the challengesfacing the industry and are geared to enhance our leadership position."4 TCS aimed atearning 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 improvedE V A a c h i e v e d . I n t h e E V A m o d e l , the components of fixed and variable pay weredetermined. Fixed pay c o m p r i s e d o f w a g e s a n d p e n s i o n w h i l e t h e v a r i a b l e p a y h a d components like bonus, profit sharing and stock options. According to him "There's noceiling on the bonus. It can be equal to the fixed portion of the salary, providing the cellhas shown that kind of EVA growth. It is not just compensation, the process aimed atemployees to also have get a feeling of ownership for their own unit, and its performance.Each employee was made to feel as if they are running their business. They had to think like entrepreneurs and know the cost attached to their business and how will they addvalue to the investment.TCS adopted EVA in 1999, when the company had a staff of around 15000, working ats e v e r a l l o c a t i o n s a c r o s s t h e w o r l d . T h r o u g h t h e E V A m o d e l , T C S a i m e d a t c r e a t i n g economic value by concentrating on long term continuous improvement. EVA measured operating and financial performance of the organization through BSC andthe compensation of all employees was linked to it. TCS went in for the EVA as duringthat time, the company was not a public limited company and hence could not have astock option plan. There were several people who played an important role in the successo f t h e o r g a n i z a t i o n , w h o n e e d e d t o b e r e c o g n i z e d . A s t h e r e w a s n o w e a l t h s h a r i n g mechanism in place, EVA was adopted to focus on continuous improvement rather thanshort term goals and also to motivate employees. It was designed to construct a definedincentive system, which would reward on the basis of profitability.In 1996, TCS was organized into a three dimensional model with the first dimensioncomprising of industry practices, which included engineering, transportation and telecom;t h e s e c o n d d i m e n s i o n c o m p r i s i n g o f s e r v i c e p r a c t i c e s l i k e e business, outsourcing,technology consulting; while global and regional o p e r a t i n g a r e a s f o r m e d t h e t h i r d dimension.A b u s i n e s s u n i t c o u l d b e a p a r t o f a s e r v i c e , a p r a c t i c e , a g e o g r a p h i c a l u n i t o r a combination of all the three. Every unit was considered to be a revenue center and had itso w n E V A target. The units that did not fall under the purview of any of these w e r e corporate offices and research & development, the costs of which were divided among allthe units. Through EVA-linked compensation, employees could claim stakes at threeEVA levels - at the organization level, at the business unit and the individual level. Theindividual was informed how he or she could contribute to the EVA enhancement at allthree levels. EVA was controlled by revenues, capital and costs, and an individual couldcontribute in any or all of these areas at all the three levels.T h e benefits of EVA were realized across all levels in the organization. E m p l o ye e s became aware of their responsibilities and their share in increasing the EVA of the unitand 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 closerelationship between pay and performance. There was an increased sense of belongingamong the employees and the employees were motivated to increase their contribution asthey were also equally benefited by the increase in EVA.EVA

was not just a performance metric but an integrated management process aimed atachieving long term goals. One of the major benefits of implementing EVA in TCS wasincreased transparency in the organization. The internal communication within a unit hadincreased considerably. The decision making process became more decentralizedThe EVA-based compensation system received severe criticism during the initial years of i t s i m p l e m e n t a t i o n . I n d u s t r y a n a l ys t s c o m m e n t e d t h a t E V A c o n c e n t r a t e d m a i n l y o n return on investments, due to which the growth of TCS could be restricted. In 2003, TCScaused an uproar in the IT industry when it reduced the variable salaries of employees by10%. This was the initial impact of EVA which was implemented in the company fromApril 01, 2003. The reduction in the variable salary resulted in an overall reduction of monthly take-home salary for most of its employees.The TCS move to cut the salary of the employees on falling short of its projected revenues for the quarter has taken the ITfraternity by surprise. There was a universal support building up among IT staff in thef o r m o f a w e b c a m p a i g n c o n d e m n i n g t h e m o v e . F r e n z i e d b l o g s w e r e b u s y g a t h e r i n g support against the announcement.Though the tactics employed by the management of Tata Consultancy Services (TCS) is p e r f e c t l y legal, the sudden manner in which the decision had been implemented h a d caused a furore. There is an element of fear among the entire software community as to if the IT companies would take a cue from the TCS initiative and make such salary pruninga r e g u l a r p r a c t i c e t o s h o w p r o f i t s i n f u t u r e . T h e m o s t a f f e c t e d p a r t i e s o f t h e s a l a r y adjustment were reportedly the confirmed employees of TCS located in the US andIndia. These people were likely to have their paycheques lesser by Rs 10,000 duringFebruary and March 2008.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 woeso f T C S staff did not seem to end only with this quarter. For, there is a n o m i n o u s reference in the letter saying, In Q4, we will follow the same basis of advance paymentof Variable Pay as per expected EVA projections at the beginning of 200708. When theaudited results for Q4 are announced in April 2008, appropriate adjustment in VariablePay will be made either upwards or downwards as the case may be.