Mumbai: Tata Consultancy Services (TCS), the country's largest private sector employer and Asia's largest software services firm, has finally decided to pass on the burden of the rising rupee to its employees.
In an e-mail to employees, TCS' head-global human resources and executive director S Padmanabhan said the company has been forced to cut the variable component of the salary packages of its employees as a rising rupee has started impacting its business.
The variable pay component of most TCS employees forms around 30 per cent of the total compensation package, while for senior management - from vice president to higher levels - the variable portion is 40-50 per cent.
This component is paid monthly, based on the company's expected performance for the quarter and is now being reduced by 20 per cent.
He said the company did not meet its internal economic value-addition (EVA) target and the reduction in the variable pay package is aimed at recovering the EVA loss.
"Based on audited results, the EVA-based variable payout amounts to Rs293 crore for the quarter. The actual variable payout based on expected EVA given in advance amounts to Rs376 crore. The advance payment that has to be adjusted amounts to Rs83 crore, which will be recovered during Q4 from the employees," Padmanabhan said in his mail to all TCS employees.
EVA is the difference between net profit and the cost of capital.
TCS said although the company met its revenue target, actual EVA fell short of the targeted figure. The variable component of pay is based on its targeted EVA, and hence the move.
"Our variable compensation policy is linked to EVA, based on the overall performance of the company and your individual performance. The variable pay component is paid monthly, based on the company's expected performance for the quarter… Variable pay may change based on actual performance of the company and the ongoing performance of the individual," TCS said in the e-mail to employees.
The move is an attempt to control costs and TCS employees are expected to take a hit anywhere between 10 to 40 per cent in their salary.
The proposed cuts in the variable component of the pay are based on the company's third quarter (October-December) performance. While fiscal fourth quarter salaries will not be affected by the variable pay cut, TCS said adjustments will be effected after the audited results for Q4 are announced in April 2008.
Padmanabhan said the annual compensation package of an employee would stand reduced by 1.5 per cent after the variable pay cut. There would, however, be no change perquisites of employees, he added.
The rupee has appreciated by 12 per cent vis-à-vis the dollar over the past year and signs of a slowdown in US economy has become a concern for IT companies.
TCS' revenues increased 5.04 per cent to Rs5,924 crore and net profit rose 6.72 per cent to Rs1,331 crore in fiscal third quarter (October-December). The third quarter also saw TCS's revenues from North America drop below 50 per cent.