TCS may press Esops option to retain talent
Yassir A Pitalwalla

mydigitalfc.com [ Wednesday, Aug 31, 2011 ]

 

But will wait for market fortunes to improve

Tata Consultancy Services, Asia’s largest software services company, may consider giving employee stock options (Esops) as a part of its move to retain talent. The idea is to prevent poaching of its talent pool of over 2,00,000 employees by multinationals like Cognizant, Accenture and IBM.

If it does give Esops, TCS will be the first group company chaired by Ratan Tata to do so. As a policy the Tata group does not give Esops, as it believes that people join the group for its reputation and solidity. In fact, the group is not among the best paymasters across industries. The only Tata firm to have given Esops is Trent that is run by Noel Tata. Ratan Tata is not on its board.

“Esops are one option. Others are using cash and variable pay. We are now focusing more on cash-based schemes of compensation. We have deliberated and decided that this is not the time for Esops, given the market environment. People should be able to make money out of Esops if it’s to serve as an effective retention tool. However, that does not mean that we will not consider giving Esops in the future,” Ajoyendra Mukh-erjee, head global human resources at TCS, told Financial Chronicle.

The current market, in which stocks across the board have suffered value erosion, causes uncertainty about Esops. As a result, the efficacy of Esops as a tool for retaining loyalty is doubtful at the moment.

“The Indian IT sector was the first and continues to be the biggest user of Esops. But most companies near the ceiling of dilution have now reduced the coverage of these schemes to middle and higher management. Not just large firms such as Wipro and Infosys but mid-tier firms such as Tech Mahindra and MindTree too have been very active users of Esops,” said Harshu Ghate , managing director at Esop Direct, the largest third-party company in India involved in designing and administering such schemes.

“The industry is growing and there are opportunities for employees and this will have an impact on retention,” said Mukherjee.
Ghate said surveys by his firm had shown that 95 per cent of Esop issuers in India believed these schemes improved staff retention.

TCS cannot give too large a discount in Esop pricing because the difference between its market value and the exercise price has to be deducted from net profit as per accounting norms. This hits the reported profit of the company if Esops are issued on a large scale.
“It is surprising that in all these years TCS did not issue Esops -- surprising because in hiring of senior staff from other firms with Esops, which they had to give up, the Tata company would have to compensate them in cash because it did not have a scheme of its own,” said Ghate.

Tata Consultancy Services, which gave its employees a 12-14 per cent wage hike in April this year, will see a 250 basis point impact of this on its margins from the second quarter.
The company is also reworking variable pay computation by linking it to unit performance rather than company performance.
That way top performing units see their employees rewarded while underperforming ones lose out on variable pay.
“This will enforce a pe­rformance culture, sending a clear message that wage hikes will be linked to performance,” said the head global human resources at TCS.

The company is better preparing employees for L1 visa interviews for moving to the United States to minimise visa rejection.
“The rigour in the application process, the planning and the selection of people need to be improved,” said Mukherjee.
According to him, the communication skills of applicants need to be brushed up so they can argue their case before the visa officers better.
The increased incide­nce of visa rejection means that firms will have to plan their requirement of skilled personnel well in advance.


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