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Satyam To Put 7,000-10,000 Staff On “Virtual Pool”
Posted by Pradeep Sadanapalli | June 16, 2009 | 625 views
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Loading ...Technology outsourcer Satyam Computer Services, which has launched a cost-cutting drive to improve its bottomline, said it would put around 7000-10,000 staff on “virtual pool” as part of its strategy to manage excess staff and cut costs.
Satyam plunged into a crisis in January ever since its founder and former chairman Ramalinga Raju shocked investors by saying profits had been overstated for years, putting in doubt the company’s very survival.
However, after the fraud became public, the government quickly swung into action, dissolving the existing board of directors to limit the damage to the shining IT sector, and appointed handpicked men in its place, who supervised a bidding process that helped Satyam find its new owner, Tech Mahindra in April.
Though Tech Mahindra succeeded in providing some stability into the functioning of Satyam’s management, yet, hit by outsourcing slowdown due to global recession and exodus of its customers, Satyam’s earnings continued to decline.
Not surprisingly, Tech Mahindra indicated last month that it needed to cut costs aggressively and might axe around 10,000 jobs that it considered as “redundant” to make Satyam a “competitive” and “viable” company.
According to Vineet Nayyar, CEO, Tech Mahindra, Satyam has excess workforce and there was an urgent need to lower the headcount if the company is to cut costs. Satyam said on Tuesday it has spent a total of Rs.1026 crore during the first three months of this year on paying salaries and another Rs.342.72 crore in other employee-related segments (Rs.91.17 crore on medical insurance for employees and Rs.251.55 crore on statutory compliance).
“It’s more than 10,000 people are excess,” Nayyar said. “Ultimately if the company fails, you have 40,000 people out of the job. Nobody wants that.”
“I think the future is great but there will have to be a few sacrifices in terms of compensation, in terms of a large number of things…Some form of least painful way of reduction in staff is an option which will have to be looked at,” he said.
Satyam chairman Kiran Karnik also acknowledged that the move, though a “difficult one,” was necessary as “there is stress on the company’s bottom line and very clearly some definite and fairly strong actions will have to be taken.”
However, last week, after India’s Corporate Affairs Minister Salman Khurseed said the government would not turn a blind eye to any lay-offs at Satyam, the company decided against laying off its associates outright and announced on Thursday that it has opted for a “Virtual Pool” program whereby the staff on the virtual pool will get only a fraction of their salary (40 percent of their existing salary along with medical insurance and provident fund) for up to six months, effective from this month and were free to look for a job elsewhere with the fragile assurance that they would be recalled and reinstated on full pay and benefits, when the economic environment improved.
“The Virtual Pool program is seen as an essential step that would provide Satyam the required agility in the near term. The imperative to win new business and generate revenue cannot be over emphasized,” the company said.
Those in the program will continue to be on Satyam’s payroll and will have access to its online learning and skill enhancement programs and will get career and financial guidance and counseling, it added.
“The Virtual Pool program is an innovative way of retaining the excellent human assets of Satyam despite the difficult global economic situation. The recessionary climate that has seriously affected the IT industry, in addition to the unprecedented set of events that Satyam faced recently, has added to its pressures. The Virtual Pool Program is a unique way of retaining associates and developing them further through training, while ensuring the financial viability of the company,” Karnik said.
Agrees A.S. Murty, CEO, Satyam. “The economic recession - the worst in recent times - has resulted in a significant deceleration of growth for our industry, which is used to seeing growth rates in excess of 30 percent year-on-year. Investments were made in people and infrastructure, anticipating such continued growth, which have since slowed down,” Murty said.
“The events of January 7, 2009 (when Ramalinga Raju admitted that he had fudged the company’s account books), and the consequential uncertainties in the initial weeks thereafter, resulted in customer losses and revenue reduction, despite our best efforts. This has also resulted in release of associates from such billable assignments,” he said.
“In our industry, people-related costs account for almost 60 percent of our revenues. In our current situation, we have a sizable number of associates who are not on billable assignments, while Business Support and Strategic Support Units have to contend with reduced activity/scale. The ‘people cost’ - as a percentage of our revenues - has therefore increased dramatically,” he added.
According to Murty, in view of the “dramatic” increase in the peoples’ cost as a percentage of Satyam’s revenues, it was needed to lower costs, while retaining key talent.
“Failure to address this quickly and effectively would result in our inability to make timely payments to associates and vendors, reduced customer and investor confidence, and our inability to make investments into business retention and growth,” Murty said.
“The Virtual Pool program is a necessity under the current circumstances and will provide the company with the required leeway to make investments and recover lost ground. The leadership team is totally committed to doing everything it can to recall associates from the Virtual Pool in an accelerated manner. I am certain we will all emerge much stronger from this transient phase,” the CEO said.
Satyam has tied up with several approved organizations to assist the associates on virtual pool in outplacement support and would offer flexibility for them to take time off to meet personal aspirations, enhance skills, take up faculty roles, contribute to society and pursue hobbies, he added.
“Surplus employees is a cause of concern and the whole IT industry is facing the same problem. We have spent lots of money on training our employees and they are an asset. We are not going to retrench them but we will create a Virtual Pool and they will be put into that,” Nayyar, who was inducted last month as a whole time director of Satyam, said.
“These employees will draw around 50 percent of their current salary that includes medical insurance and provident fund benefits, for six months. The company will hold a review afterwards. At a later stage if they still needed a job they would be considered for employment,” Nayyar said, adding that those in the virtual pool would also continue to have access and guidance to continuously upgrade their skills utilizing the company’s learning programs and mentoring resources, equipping them for the evolving business landscape.
The company, which last week said it has spent a total of Rs.1026 crore during the first three months of this year on paying salaries and another Rs.342.72 crore in other employee-related segments (Rs.91.17 crore on medical insurance for employees and Rs.251.55 crore on statutory compliance) and earned net profit of Rs.237 crore between October 2008 and February 2009, said that putting one-fourth of its staff on virtual pool will enable it not only to save about Rs.1 crore everyday but also retain talent within the company.
The program, Satyam said, is applicable to its associates based in India “who have not been in billable roles (those on the bench, between projects) for three months or more and includes support resources (like marketing, finance, HR and administrative teams).”
Satyam has the largest bench strength in the IT industry - 13,000 professionals - with about 5000 located in the US.
As of March 28, 2009, Satyam had 41,622 associates and its key subsidiaries, including Satyam BPO, had 3828 associates.
Satyam, which has already issued notice to 7535 associates on Friday, instructing them not to come to office from June 19 onwards and surrender their laptops and also their office access cards, said it was a one-time program, suggesting that similar drastic measure to trim staff costs may not be needed in the future. The company, however, did not specify the action that it might take on staff in the virtual pool, should it fail to increase its business volumes in six months.
Following the company’s move, the government said the decision rested with the company board, which, it said was “responsible and sensitive.”
According to many HR consultancy firms, Satyam’s move was a smart one as it not only allowed it to trim costs but also retain talent despite the difficult global economic situation
“A virtual pool is a tried and tested practice, particularly among multinational companies. Many employees, who do not want to lose jobs in premium companies, are happy with such offers. This is a good move from Satyam’s standpoint, combined to meet the challenges in a business cycle and mitigate human pain,” said Ajit Isaac, managing director of HR outsourcing firm Human Capital Solutions.
However, the latest announcement has triggered concerns among the associates that with a reduced pay packet, they would not be able to honor their personal commitments like housing loan, car loan, credit card payments, insurance, health policies and education loans.
SOURCES:
International Business Times
Topics: Information Technology, Business News |
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