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) developmental uses,

(ii) administrative uses/decisions,
(iii) organizational maintenance/objectives, and
(iv) documentation purposes

Table below outlines these and specific uses more clearly:-

Multiple Purposes of Performance Assessment

General Applications Specific Purpose

Identification of individual needs

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

Salary
Promotion
Retention or termination
Administrative Uses/Decisions Recognition of individual performance
Lay-offs
Identification of poor performers

HR planning
Determining organization training needs
Evaluation of organizational goal
Organizational Maintenance/ Objectives achievement
Information for goal identification
Evaluation of HR systems
Reinforcement of organizational
development needs

Criteria for validation research

Documentation for HR decisions
Documentation Helping to meet legal requirements

PERFORMANCE APPRAISAL AND COMPETITIVE

ADVANTAGE IN TCS

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 :
 Improving
Strategy and Performance Making correct
Behavior decisions

Competitive
Advantage

Values and Ensuring Legal

Behavior Minimizing Compliance
dissatisfaction and
turnover

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 well-
defined 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.”