Saloni Meghani

Reducing workforce numbers without subjugating employees to acute anguish is an arduous challenge for the best of companies. Tata Steel has shown there is a humane way of doing this

The complications confronting Tata Steel in the early 1990s were gargantuan. The company was saddled with a 78,000-strong workforce, a plant on the verge of obsolescence, and a collective mindset that was resistant to change. Difficult as it was, updating the plant proved easier. The crises of too many people and too small mindsets were a different kettle of steel.

Rightsizing, downsizing, rationalising — no matter the terminology used, slashing workforce numbers is rarely as straightforward as the experts make it seem. For Tata Steel the issue was even more complex, and the reason had much to do with the ethos of the company and the relationship it had nurtured with its people. This was an organisation that had pioneered a host of employee benefits that would later come to be mandated through government regulations in India and abroad. It had second- and third-generation employees (sons were guaranteed a job when their fathers retired), a township that touched every aspect of employee life, and a history of zero retrenchment.

But the economic realities of modern industry were not to be denied. Something had to give and it wasn't merely a question of saving costs; Tata Steel's survival as an enterprise depended on it cutting its workforce. J. J. Irani, one of India's greatest men of steel, tells a story from 1993, when he was Tata Steel's managing director: "I was talking to a big union gathering about the need for our slimming exercise when one fellow from the back stood up and shouted, 'All this is fine, but you have taken away the jobs of our sons.' I shot back, 'Don't worry about your son's job; worry about your own and mine, because if we don't change this company will shut down. Then neither you nor I will have a job.'"

When Tata Steel undertook the onerous task of pruning its workforce to the 38,000 of today, it was convinced of the need to avoid spattering bad blood all round. Called the Early Separation Scheme (ESS), the humaneness and effectiveness with which the company cut its numbers has made it an example for others to follow. Large business groups like the Birlas and companies such as Maruti-Suzuki and the National Thermal Power Corporation have emulated Tata Steel's voluntary retirement concepts.

"Looking at the generosity of our scheme, some pundits even commented that we either have too much money or too little brains," quips Dr Irani, under whose leadership the ESS was first taken up. The company has till date spent close to Rs 800 crore on its voluntary retirement exercises.

In 1993 Tata Steel realised that if it did not shed the extra pounds it would not be able to run the marathon. "At the time we were so large that we did not even know how many employees we had," says Niroop Mahanty, head of human resources at the company. "It took us three months to arrive at the actual number. We had about 3,000 people working as secretaries and office boys. The accounts department had 32 peons, chauffeurs, and security personnel. We had a department that made paint, another that made ice… We even had a dairy farm!"

When Tata Steel sat down to do its homework, it realised that it could not compare itself with companies in the west, where laws were more favourable and social security systems provided employees with a cushion. But, rather than getting around laws discouraging retrenching, the real challenge lay in convincing people — including some senior managers — that rightsizing was urgently needed.

Dr Irani and his team invested a great deal of time and effort in a company-wide communication campaign, holding joint departmental meetings and individual sessions at different levels in the organisation. The employees' union was made an integral part of the consultative process, to prepare workers to be partners in the process. "The reason our ESS has not caused bitterness is that, before we actually did it, we spent nearly a year communicating the necessity of reducing our numbers," says Mr Mahanty.

In 1994 Tata Steel kicked off its first voluntary retirement scheme, with a package approved by the income-tax department of the Indian government. A mere 1,000 employees opted for it. The company realised it would have to think out of the box to make its rightsizing effort more successful.

An internal survey was undertaken to find out what worker expectations were. Says Mr Mahanty: "We realised, more than anything else, that people felt bad about permanently severing their connection with the company. So we came up with the idea of a pension plan." There was a Tata precedent. Group company Nelco had introduced a pension scheme when chairman Ratan Tata was heading it. The cornerstone of the exercise was its extravagant generosity. The ESS allowed employees to get the current level of their salary or more, every month, till they reached the age of retirement. The former employee's family would continue to get the money till this date, even if he or she died prematurely.

Tata Steel's involvement did not end with the financial settlement. Those opting for the ESS were also allowed the benefit of the company's medical facility. If they left Jamshedpur, the company assisted with Mediclaim. The survey also revealed that the single most worrying aspect was the prospective loss of company accommodation. So Tata Steel gave a three-year extension for families to vacate their quarters.

There have been 20 ESS schemes at Tata Steel thus far and more than 20,000 employees have opted for these. Each time a new ESS plan was put into action, the company tweaked the implementation. "Those who don't take it the first time get reduced benefits the next time they opt for it. Earlier, we gave them an annuity of 1.2 to 1.5 times their salary, but that has changed," says Mr Mahanty.

In the realm of employee family benefits, Tata Steel has shifted its focus from employment to employability. While employees' children were given jobs in the company earlier, now they are imparted training. Studying at the RD Tata Technical Institution gives them the skills required to get decent jobs. Tata Steel also commissioned a survey to identify small businesses that separated employees could set up after leaving the company. A single-window system for all settlements reduced paperwork and bother for employees. An ESS Employees' Association was set up and this offered services for supply or housing projects.

In the last two or three years Tata Steel has also been providing financial counselling to employees who opt for its severance packages. "Some of them do not know what to do with the money they get and end up misusing it," says Mr Mahanty. "Our guidance helps them decide how and where to invest their money." As an indication of its continuing commitment to the process, Tata Steel commissioned a study by the Xavier Labour Relations Institute, Jamshedpur, to find out how those who had accepted the scheme in the past were faring.

"We do not want to say that former employees are jumping for joy," says Mr Mahanty. "The counselling that precedes the severance can sometimes be quite intensive. But the fact is they understand that Tata Steel is strong enough to give them a more dignified exit now than it might in the future." Adds S. K. Roy, a former cost accountant at Tata Steel: "In the long run, what is the point of employees being with the company if the company itself does not survive?"

What distinguishes Tata Steel's rightsizing is that the implementation has been employee-oriented and civilised, not brutally bulldozed through. "Even today, when I think of Tata Steel, my chest swells with pride," says P. R. Mishra, who worked as a senior technician for the company before taking the ESS route. "Our biggest advantage," says Mr Mahanty, "is the trust we continue to enjoy."

Uploaded in March 2005