Digital, performance take top floor in TCS’ new pyramid

TCS is also increasing the proportion of variable pay that’s linked to performance for experienced engineers.

Agencies
TCS added 26,453 employees in FY19 and an equivalent number in the first six months of FY20.
BENGALURU | MUMBAI: Tata Consultancy Services has brought in about 30,000 fresh graduates over the six months ended September, eclipsing the net hiring of the previous financial year, as it rebuilds its pyramid model with a large number of younger engineers with digital skills to reduce costs and improve margins.

India’s largest software service exporter is also increasing the proportion of variable pay that’s linked to performance for experienced engineers as part of the rejig.

The process — called pyramid rationalisation — is predicated on having a larger number of employees with less than four years of experience and fewer employees with progressively more experience, and as a result, a reduced salary bill. The employee pyramid is the cornerstone of Indian IT’s margin management.


“There are many people who have been in the organisation for many years. This (model) keeps getting refreshed, recalibrated, relaunched every few years,” TCS CFO V Ramakrishnan told ET in an interview, pointing out that the company was a 50-year-old organisation.

IT companies such as Cognizant have also talked about pyramid restructuring as part of their strategy to lower costs.

The Teaneck, New Jersey-based company cut about 400 senior employees through a voluntary retirement scheme and asked more than 200 senior employees to leave. TCS is not looking at those ways to manage its pyramid, Ramakrishnan said.
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“We are not talking about that (job cuts and VRS). The cost structures can be more performance-oriented. How we can do this in a calibrated manner, how we get do it more deeply in the organisation — that will be the measure of success,” he said.

The company has already tied pay to performance at different levels and different parts of the organisation. “So, we will see how to make it even more granular. That is one of the things we will do,” he said.

However, analysts said TCS will have to include some component of cuts if it intends to rebalance the pyramid.

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“It means only one thing — they have to reduce middle and senior management. Cognizant has been open about it and is doing it brutally. With TCS, this may be more performance appraisal-related exits,” an analyst with a Mumbai brokerage said, declining to be identified.

TCS added 26,453 employees in FY19 and an equivalent number in the first six months of FY20. Accounting for the 30,000 trainees, a back of the envelope calculation implies that over 3,500 employees left the company in the first half. At the end of the second quarter, TCS had over 450,000 employees.

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TCS CEO Rajesh Gopinathan said the company was in the early stages of the process. “These are structural exercises which we are executing on and all of them will be margin accretive,” he said.
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