TCS has brought in about 30,000 fresh graduates in a push to rebuild its pyramid model with a large number of younger engineers with digital skills to reduce costs and improve margins. Here's how TCS is saving hiring money.
TCS is 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.
Managing the pyramid
The employee pyramid is the cornerstone of Indian IT’s margin management. The model keeps getting refreshed, recalibrated, relaunched every few years. 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, however, is not looking at those ways to manage its pyramid.
The cost structures, TCS says, can be more performance-oriented. The company has already tied pay to performance at different levels and different parts of the organisation.
However, analysts said TCS will have to include some component of cuts if it intends to rebalance the pyramid. “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.