When Tata Group’s current chairman Cyrus Mistry took over from his predecessor Ratan Tata in December 2012, he spoke of “winds of change” that would accompany the change of guard at Bombay House, the salt-to-software conglomerate’s head office in south Mumbai.
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One such change that is imminent at the 146-year-old conglomerate is the way in which compensations will be handed out to a major portion of the 581,473 employees across group firms.
Tata Sons, the flagship holding firm of the group, has mandated a human resource (HR) consulting firm to rework the structure of remuneration paid to employees across group companies. The aim is to establish a greater linkage between remuneration and performance, a person with direct knowledge of the development said. Employees could even end up earning more than before under the new structure.
This is being done in light of the fact that not all companies within the conglomerate are performing evenly.
For instance, while Tata Consultancy Services (TCS) has been doing exceedingly well, carmaker Tata Motors has been underperforming for a while now.
The initiative is being led by the group corporate HR department at Tata Sons, which is headed by N.S. Rajan, who Mistry brought in from Ernst and Young in April 2013 as a part of his core team.
In response to an email sent to Tata Sons seeking comment, the group denied that there was any plans to rework the compensation structure and said that “for decades, compensation has been a mix of fixed and performance-linked variable elements.”
Even so, the fact that performance-linked variable pay is becoming increasingly important in the way that conglomerate pays salaries to executives is evident from the way in which increments have been structured in FY14.
N Chandrasekaran, TCS’ chief executive and managing director was rewarded in FY14 for his company’s stellar performance in fiscal 2014 with a 60% pay hike at Rs18.68 crore. Around 86% of this increment was through commission, which is based on performance criteria laid down by the board of directors. While directors of companies always have a sizeable portion of variable commission as a part of their emoluments, even middle and senior management level executives may see the variable proportion of their salaries rising, the person familiar with the development said.
In his first letter to employees after taking over as chairman, Mistry had cautioned them about the fate that meets corporations that are “happy with resting on their laurels” and are “weeded out by nimble competition that have sensed the pulse of customers with an emphasis on innovation.”
“The idea (of the new salary structure being contemplated) is to nudge some employees out of their comfort zones and communicate the message that the conglomerate is going to become far more performance-oriented in its remuneration policies, than it was earlier,” this person said. Going by publicly available data, the conglomerate has stepped up its expenditure related to employees over the last fiscal.
Employee expenses of six large listed Tata Group firms (Tata Steel, Tata Motors, Tata Consultancy Services, Tata Power, Indian Hotels, and Titan Industries) rose almost 20% over the year earlier at Rs75,160 crore, according to Capitaline data. This was double the 10% growth reported in FY13. The percentage growth in fiscal 2014 was also higher than the compounded annual growth rate of 15% in employee expenses since 2007-08 till 2013-14. The Tata spokesperson said in his email that the average compensation increase in the companies that you cite is between 8 and 12%.
“Each Tata company practices its own compensation policy, determined by the context of the industry it operates in and, wherever required, approved by shareholders concerned,” the Tata spokesperson said. “Tata companies have always had the talent that they desire. To this end, each company adopts progressive HR practices to attract, retain and develop the required managerial strength.”