TCS Recipe For Higher Profits: Hire More Freshers, Reduce Experienced Employees; Is This Fair?

The Forbes World’s declared most Innovative company TCS has recently recruited around 30,000 freshers for reducing cost and earning better margins.

The company has also rebuilt its pyramid model which will have a huge number of young talent having digital skills.

As part of this strategy, the company is also increasing its variable pay proportion which is linked with the performance for experienced employees.

Pyramid Rationalisation

This is the process being followed by this Mumbai-based company. 

According to this process, a larger number of employees with less than four years of experience will form the base of the pyramid.

Also, a few employees with progressively more experience will form the slanting structure of the pyramid. As the employee count reduces as it goes further in top.

So overall, this strategy will reduce the salary expenditure over the company. The employee pyramid can be considered as a foundation for Indian IT’s margin management.

Many Companies Use The Same Strategy

V Ramakrishnan, the TCS CFO said “There are many people who have been in the organization for many years. This (model) keeps getting refreshed, recalibrated, relaunched every few years,”.

He also informed that the company is a 50-year old organization while talking about this topic.

TCS is not the only company following this Pyramid model, other companies like Cognizant also talked about this pyramid restructuring model as being part of their strategy to lower cost.

No Job Cuts Or VRS

As part of this strategy, Cognizant has reduced around 400 senior employees through a voluntary retirement scheme.

They have also laid off around 200 senior employees. Although TCS refused to manage their employee pyramid that way.

Ramakrishnan assured saying “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 can do it more deeply in the organization — that will be the measure of success,”.

Analysts View On This Regime 

India’s biggest outsourcer company  TCS has already engaged pay to perform strategy at different levels and different parts of the organization.

Ramakrishnan added, “So, we will see how to make it even more granular. That is one of the things we will do,”.

Although the advisers think that TCS will have to consider some type of deductions if they are planning to balance the pyramid.

An anonymous Mumbai-based analyst said that “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,”.

In Fiscal year 2019, TCS added 26,453 employees to its existing employee pool. It has also recruited 30,000 freshers in the first six months of the current financial year.

According to a rough calculation, 3,500 employees left the company in the first half. TCS had 4,50,000 employees at the end of the second quarter.

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