Performance Appraisal in TCS

Project Report on Performance Managment

Submitted to Prof.Snigdha Patnaik

Performance Appraisal System in TCS

Submitted By: Auronil Dutta Roll No. 8, PGDM (3 Year) (2007-2010) XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR

Tata Consultancy Services Limited (TCS) is the world-leading information technology consulting, services, and business process outsourcing organization that envisioned and pioneered the adoption of the flexible global business practices that today enable companies to operate more efficiently and produce more value. They commenced operations in 1968, when the IT services industry didn’t exist as it does today. Now, with a presence in 34 countries across 6 continents, & a comprehensive range of services across diverse industries, they are one of the world's leading Information Technology companies. Seven of the Fortune Top 10 companies are among our valued customers. They are part of one of Asia's largest conglomerates - the TATA Group - which, with its interests in Energy, Telecommunications, Financial Services, Chemicals, Engineering & Materials, provides us with a grounded understanding of specific business challenges facing global companies. As we move into an era of e-business where IT professionals will interview employers so stringently that 40 percent employers will miss recruitment goals (source: Gartner Group), the role of HR assumes unthinkable proportions and is subject to mammoth challenges. With this sensitive breed of IT professionals, how has TCS grown to and sustained at the number one position is a question which market watchers have asked themselves a thousand times. There is but one answer - passion for excellence in the workforce practices. TCS has developed an unbreakable bond with sound HR practices in an environment that defies traditional roles and responsibilities. The TCS-HR group operates with technical experts to create a synergy which is enviable. Figure 1 illustrates the role of HR, which evidently is that of a facilitator. So whether it is recruitment or even career development, HR is the catalyst which initiates and institutionalizes processes. To manage all the functions for over 14000 employees is a Herculean task but the smoothness of operations is intriguing. The HR structure, which allows flexibility and empowerment, is the solution.

“A poor performer is not always a poor performer for life,” says S Padmanabhan, executive vice president, global human resources, Tata Consultancy Services (TCS). The Rs 9,749-crore InfoTech major has 45,000 employees on its rolls. Close to 90 per cent of the company’s income flows in from outside India. And the bulk of its employees work across TCS offices in 34 countries and on-site in more than 50 countries. For most of them, the supervisor changes every time a project changes. Given that no two projects — or, for that, matter, no two bosses — are alike, performance management and performance appraisal must be a nightmare. Or is it?

Performance Appraisal Criteria at TCS

OBJECTIVES Data relating to performance assessment of employees arc recorded, stored. and used for seven purposes. The main purposes of employee assessment are: 1. To effect promotions based on competence and performance. 2. To confirm the services of probationary employees upon their completing the probationary period satisfactorily. 3. To assess the training and development needs of employees. 4. To decide upon a pay raise where (as in the unorganized sector) regular pay scales have not been fixed. 5. To let the employees know where they stand insofar as their performance is concerned and to assist them with constructive criticism and guidance for the purpose of their development. 6. To improve communication. Performance appraisal provides a format for dialogue between the superior and the subordinate, and improves understanding of personal goals and concerns. This can also have the effect of increasing the trust between the rater and the ratee. 7. Finally, performance appraisal can be used to determine whether HR programmes such a selection, training, and transfers have been effective or not. Broadly, performance appraisal serves four objectives(i) (ii) (iii) (iv)

developmental uses, administrative uses/decisions, organizational maintenance/objectives, and documentation purposes

Table below outlines these and specific uses more clearly:-

Multiple Purposes of Performance Assessment

General Applications

Specific Purpose

Developmental Uses

Identification of individual needs Performance feedback Determining transfers and job assignments Identification of individual strengths ad development needs

Administrative Uses/Decisions

Organizational Maintenance/ Objectives

Documentation

Salary Promotion Retention or termination Recognition of individual performance Lay-offs Identification of poor performers HR planning Determining organization training needs Evaluation of organizational goal achievement Information for goal identification Evaluation of HR systems Reinforcement of organizational development needs Criteria for validation research Documentation for HR decisions Helping to meet legal requirements

PERFORMANCE APPRAISAL ADVANTAGE IN TCS

AND

COMPETITIVE

The objectives of performance appraisal, point out the purpose which such an exercise seeks to meet. What needs emphasis is that performance evaluation contributes to TCS’s competitive strength. Besides encouraging high levels of performance, the evaluation system helps identify employees with potential, reward performance equitably and determine employee's need for training. Specifically, performance appraisal has helped the TCS gain competitive edge in the following ways :

Strategy and Behavior

Improving Performance

Making correct decisions

Competitive Advantage

Values and Behavior

Minimizing dissatisfaction and turnover

Ensuring Legal Compliance

TCS conducts two appraisals: 1. At the end of the year 2. At the end of a project. Appraisals are based on Balanced Scorecard, which tracks the achievement of employees on the basis of targets at four levels —    

financial customer internal learning and growth

The financial perspective quantifies the employee’s contribution in terms of revenue growth, cost reduction, improved asset utilization and so on; The customer perspective looks at the differentiating value proposition offered by the employee; the internal perspective refers to the employee’s contribution in creating and sustaining value; the learning and growth are self-explanatory. The weightage given to each attribute is based on the function the employee performs. Based on their individual achievements, employees are rated on a scale of one to five (five = “superstar”). If employees get a low rating (less than two) in two consecutive

appraisals, the warning flags go up. “If the poor performer continues getting low scores then the exit option may be considered” Over the years TCS has found the pattern that leads to the maximum decline in performance — boredom. If employees work for more than two years on the same project, typically either their performance dips or they leave the organization. To avoid that, TCS shuffles its employees between projects every 18 months or so. “Performance drops if motivation drops” At the heart of an employee's satisfaction lies the fact that his performance is being appreciated and recognized. TCS's performance management system has metamorphosed into one that emphasizes objectivity and a system that mandates performance evaluation against pre-determined criteria. What deserve special mention is the active participation of the senior management in the determination of guidelines for the performance appraisal process. The process ensure buy in of the employees since the guidelines for the rating system and its conversion into money terms is not unilaterally decided by HR but is a consensus of a cross functional team with representation from all levels.

TCS's performance appraisal system is supported by an online system called the Human Resource Management System- an Oracle Developer 2000 based tool. The system individual right from his biographical details to his projects performance. An employee's performance history at the click of a button and this accurately maintained for 14000 employees! Right from his entry, an employee in TCS get formal performance feedback once very two months till such time that he is confirmed after which the performance feedback is provided twice every year on a formal basis. TCS however widely encourages informal feedback discussions between Project Leaders and Team Members and this concept has found an overwhelming appeal among the people.

Recognition at TCS Guaranteed high motivation levels at TCS through competitive compensation packages, stimulating job content, outstanding development opportunities, and, not the least, an innovative recognition mechanism

The various ways in which TCS recognizes its people are listed below.             

Project milestone parties — to encourage efficient execution of projects. Recognition of star performers / high fliers — to recognize outstanding talent. Nomination to covet training programmes — to encourage self-development. Best project award — to promote a spirit of internal competition across work groups and to foster teamwork. Best PIP award — to encourage innovation and continuous improvement. Best auditor award — to acknowledge participation in critical support roles Spot awards — to ensure real-time recognition of employees. Recommendations for new technology assignments / key positions — to ensure career progression and development of employees' full potential. Performance-based annual increments — to recognize high performers Early confirmations for new employees — to reward high-performing new employees Long-service awards — to build organisational loyalty EVA-based increments — to ensure performance-based salaries. On-the-spot recognition — to guarantee immediate recognition of good performance.

Human Resource Management System The functions of HRMS can be broadly stated as: Organisational set up and configuration Defining organisational structure and hierarchy. Updating organisational structure and hierarchy. Defining and maintaining employee classification and hierarchy. Set up access and approval levels.

Recruitment Advertisements in various forms. Application processing. Written tests and group discussions. Updated lists for campus recruitments.

Employee details maintenance Maintaining service records of employees.

Employee benefits details maintenance Tracking changes in salary scales and allowances. Producing appropriate reports. Verifying, registering and updating professional memberships. Allowances and claims processing. Issuing loans and advances.

Attendance management Tracking attendance registers. Tracking late arrivals. Tracking overtime. Maintaining shift rosters. Capturing interface data. Generating interface reports.

Training details maintenance Tracking budgetary allocations. Tracking internal training programmes. Maintaining details of training institutions. Maintaining training requests and requirement details. Maintaining post-training details. Maintaining post-training work reallocations.

Allocations, transfers and deputation management Allocations, transfers and deputation management. Maintaining deputation details. Generating transfer details.

Performance-appraisal management Maintaining details of timely performance-appraisal reports. Maintaining details of ratings from appraisal officers. Generating details of reminders for performance-appraisal reports.

Promotion-details management Generating lists of eligible candidates. Grading eligible candidates. Maintaining details of promotions.

Leave-details management Crediting leave to employee accounts. Maintaining details of leave availed and required approvals. Maintaining details of leave encashment. Validating details of residual leave.

Separation-details management Updating details of terminal benefits. Registering details of employee benefits. Generating reports of these details. Manpower planning Maintaining transfer details. Maintaining succession details. Generating MIS reports. Generating current human resources details.

P-CMM ( PEOPLE CAPABILITY MATURITY MODEL ) The concept that is very close to the heart of the HR group and one that has seen mass appeal is the PEOPLE CAPABILITY MATURITY MODEL or the P-CMM. TCS has been the first company in India to be visited by the author of P-CMM - Dr. Bill Curtis. The HR group along with the Software Engineering Process Group has dedicatedly worked towards achieving a high maturity level for the people processes. And it is no mean feat that the two groups have generated such synergy that for a long time every one will be speaking one language - the-P-CMM. For the first time, all of the HR processes will be subjected to an audit and that in itself is an achievement to be proud of because we hear so few a company having its HR

processes audited. TCS plans to have an organization wide assessment this year. So HR now in the books of "QUALITY". For the first time, all of the HR processes will be subjected to an audit and that in itself is an achievement to be proud of because we hear so few a company having its HR processes audited. TCS plans to have an organization wide assessment this year. So HR now in the books of "QUALITY". Developing the HR capabilities has been an imperative. Equipped with the training programmes at TMTC (The TATA Management Training Centre), the extensive Labs at ISABS and ISISD the constant exposure at conferences, the HR team is a formidable one and at the cutting edge of HR technology. The HR team in TCS is transcending from its traditional "maintenance" role to a new developmental role. Designing training modules for Senior Project Leaders on performances management, facilitating the implementation of P-CMM ( being done for the first time in Asia) or designing a Balanced Score Card for the team, the HR group is at the forefront, rubbing shoulders with the technology experts.

The People Capability Maturity Model consists of five maturity levels that establish successive foundations for continuously improving individual competencies, developing effective teams, motivating improved performance, and shaping the workforce the organization needs to accomplish its future business plans. Each maturity level is a welldefined evolutionary plateau that institutionalizes new capabilities for developing the organization's workforce. By following the maturity framework, an organization can avoid introducing workforce practices that its employees are unprepared to implement effectively.

The five stages of the People CMM framework are: P-CMM - Initial Level (Typical characteristics: Inconsistency in performing practices, Displacement of responsibility, Ritualistic practices, and Emotionally detached workforce). P-CMM - Managed Level (Typical characteristics: Work overload, Environmental distractions, unclear performance objectives or feedback, Lack of relevant knowledge, or skill, Poor communication, Low morale) P-CMM - Defined Level (Although there are performing basic workforce practices, there is inconsistency in how these practices are performed across units and little synergy across the organization. The organization misses opportunities to standardize workforce practices because the common knowledge and skills needed for conducting its business activities have not been identified) P-CMM - Predictable Level (The organization manages and exploits the capability created by its framework of workforce competencies. The organization is now able to manage its capability and performance quantitatively. The organization is able to predict its capability for performing work because it can quantify the capability of its workforce and of the competency-based processes they use in performing their assignments) P-CMM - Optimizing Level (The entire organization is focused on continual improvement. These improvements are made to the capability of individuals and workgroups, to the performance of competency-based processes, and to workforce practices and activities. The organization uses the results of the quantitative management activities established at Maturity Level 4 to guide improvements at Maturity Level 5. Maturity Level 5 organizations treat change management as an ordinary business process to be performed in an orderly way on a regular basis) A CASE STUDY ON EVA AND COMPENSATION MANAGEMENT SYSTEM IN TCS

During the first quarter of the financial year 2005-06, about 1000 employees whose performance was not up to the mark were asked to leave Tata Consultancy Services (TCS), the largest IT company in India. TCS had asked around 500 people to leave the company after the second annual appraisal it carries out, citing performance-related issues. By the end of the financial year, this number could went up to 600. The employees who were asked to leave are mostly those with 2-3 years of experience and do not include trainees because they have less than a year’s experience.HR experts believed that this decision was based on the implementation of the EVA(Economic Value Added) based model for assessing employees' contributions, at the company. The first two year cycle of EVA had just been completed when the retrenchment decision was taken. TCS came in the news for cutting down the variable pay of employees for

slippages in internal growth targets — a move that will save it about Rs 83 crore. This move however was unlikely to be linked any slowdown worries. This manner of forced attrition was only linked to the appraisal process. It was not linked to any other factor.Those who were asked to leave had obtained low ratings in their performance appraisal for two consecutive years, despite being under mentorship.It seemed to be a routine exercise carried out bi-annually to weed out non-performers. The number of employees impacted during this year till date is 500 which constitutes about 0.5% of the company’s employee strength of 1,08,000. In this process if an employee gets a grade of 2 or below during the first appraisal cycle, the company puts the employee on a performance improvement plan that includes additional training and assignments on new projects. At the end of the second appraisal if the employee’s ratings do not improve to a grade better than 2, the employee is asked to resign. TCS arranges for placement agencies to help the employees get placed in other organizations though. The grades are on a scale from 1 to 5, with 1 being the lowest and 5 being the highest. At a time when IT manpower was in short supply and IT and BPO companies were going out of their way to reduce employee attrition, TCS's decision to retrench employees made headlines in several Indian news dailies. On April 19, 2005, TCS announced its annual results for the fiscal 2004-05. The company declared total revenues of US$ 2.24 billion and net profit of US$ 0.51 billion. TCS had been the first Indian IT company to achieve the US$ 1 billion revenue milestone in the fiscal 2002-03. It continued its success story when it became the first Indian IT company to earn revenues of more than US$2 billion per annum. S. Ramadorai (Ramadorai), CEO & Managing Director of TCS commented, "Consistent with our position as the pioneer of the Indian IT industry, TCS is proud to be the first IT Company to cross the two billion dollar milestone. Through our strategic initiatives we have managed to double our revenues in the last two years. We are alive to the challenges facing the industry and are geared to enhance our leadership position."4 TCS aimed at earning revenues of US$ 5 billion by 2010. The EVA compensation model was used as a basis for giving incentives to employees and the bonus declared was a part of improved EVA achieved. In the EVA model, the components of fixed and variable pay were determined. Fixed pay comprised of wages and pension while the variable pay had components like bonus, profit sharing and stock options. According to him "There's no ceiling on the bonus. It can be equal to the fixed portion of the salary, providing the cell has shown that kind of EVA growth. It is not just compensation, the process aimed at employees to also have get a feeling of ownership for their own unit, and its performance. Each employee was made to feel as if they are running their business. They had to think like entrepreneurs and know the cost attached to their business and how will they add value to the investment. TCS adopted EVA in 1999, when the company had a staff of around 15000, working at several locations across the world. Through the EVA model, TCS aimed at creating economic value by concentrating on long term continuous improvement.

EVA measured operating and financial performance of the organization through BSC and the compensation of all employees was linked to it. TCS went in for the EVA as during that time, the company was not a public limited company and hence could not have a stock option plan. There were several people who played an important role in the success of the organization, who needed to be recognized. As there was no wealth sharing mechanism in place, EVA was adopted to focus on continuous improvement rather than short term goals and also to motivate employees. It was designed to construct a defined incentive system, which would reward on the basis of profitability. In 1996, TCS was organized into a three dimensional model with the first dimension comprising of industry practices, which included engineering, transportation and telecom; the second dimension comprising of service practices like e-business, outsourcing, technology consulting; while global and regional operating areas formed the third dimension. A business unit could be a part of a service, a practice, a geographical unit or a combination of all the three. Every unit was considered to be a revenue center and had its own EVA target. The units that did not fall under the purview of any of these were corporate offices and research & development, the costs of which were divided among all the units. Through EVA-linked compensation, employees could claim stakes at three EVA levels - at the organization level, at the business unit and the individual level. The individual was informed how he or she could contribute to the EVA enhancement at all three levels. EVA was controlled by revenues, capital and costs, and an individual could contribute in any or all of these areas at all the three levels. The benefits of EVA were realized across all levels in the organization. Employees became aware of their responsibilities and their share in increasing the EVA of the unit and organization. All the units could determine how they had fared against the targets. The bonus banks also helped in sustaining performance from the individuals, with close relationship between pay and performance. There was an increased sense of belonging among the employees and the employees were motivated to increase their contribution as they were also equally benefited by the increase in EVA. EVA was not just a performance metric but an integrated management process aimed at achieving long term goals. One of the major benefits of implementing EVA in TCS was increased transparency in the organization. The internal communication within a unit had increased considerably. The decision making process became more decentralized The EVA-based compensation system received severe criticism during the initial years of its implementation. Industry analysts commented that EVA concentrated mainly on return on investments, due to which the growth of TCS could be restricted. In 2003, TCS caused an uproar in the IT industry when it reduced the variable salaries of employees by 10%. This was the initial impact of EVA which was implemented in the company from April 01, 2003. The reduction in the variable salary resulted in an overall reduction of monthly take-home salary for most of its employees.The TCS move to cut the salary of

the employees on falling short of its projected revenues for the quarter has taken the IT fraternity by surprise. There was a universal support building up among IT staff in the form of a web campaign condemning the move. Frenzied blogs were busy gathering support against the announcement. Though the tactics employed by the management of Tata Consultancy Services (TCS) is perfectly legal, the sudden manner in which the decision had been implemented had caused a furore. There is an element of fear among the entire software community as to if the IT companies would take a cue from the TCS initiative and make such salary pruning a regular practice to show profits in future. The most affected parties of the “salary adjustment” were reportedly the confirmed employees of TCS located in the US and India. These people were likely to have their paycheques lesser by Rs 10,000 during February and March 2008. There is fear that soon other top companies such as Infosys and Wipro too may adopt the practice owing to the appreciating rupee value against dollar. And this has resulted in blog and email campaigns mustering support against the move. Whatever be it, the woes of TCS staff did not seem to end only with this quarter. For, there is an ominous reference in the letter saying, “In Q4, we will follow the same basis of advance payment of Variable Pay as per expected EVA projections at the beginning of 2007-08. When the audited results for Q4 are announced in April 2008, appropriate adjustment in Variable Pay will be made either upwards or downwards as the case may be.”