Jamshedpur: Tata Steel looks at bringing down employee cost from the present 18 per cent to around 10 per cent of its turnover as one of the "biggest challenges" ahead of it. Delivering the 19th Michael John Memorial Lecture here recently, Tata Steel MD B Muthuraman said: "One of our biggest challenges is our disproportionately high employee cost."

This was among the many challenges ahead of Tata Steel en route creating economic value and an EVA-positive company, he said.

Citing an example, he said a recent visit by a team from Bao Steel of China, one of the low cost steel producers globally, producing around 10-12 million tonne annually, revealed that their employee cost was six per cent of their turnover, whereas Tata Steel’s stood at 18 per cent.

According to Mr Muthuraman, successful steel companies in the world and companies in the heavy industry had employee costs in the range of five to 12 per cent of their turnover.

"Our inputs are market driven; our products and product prices are market driven; our profits are market driven; therefore it is logical that employee compensation is also market driven," the Tata Steel MD said.

Tata Steel would thus, in partnership with the Tata Workers’ Union (TWU), "Think of innovative and new solutions to actually reduce the employee cost to about 10 per cent of our turnover within a reasonable time frame and maintain it at that level," Mr Muthuraman said.

Without using the word "outsourcing", the Tata Steel MD said one of the ways of bringing down employee cost could be by its focusing on core functions like mining, manufacturing and marketing and by handing over non-core functions to other people who have who have expertise in these areas and who can provide these service levels.

"We therefore need to re-engineer Tata Steel in a manner where we run our core business, become even better at it, expand it to become even more globally competitive, create higher economic value and satisfy shareholders, employees and society better," he said.

Mr Muthuraman, who was conferred with the Michael John Gold Medal and a citation by TWU president RBB Singh, in the presence of Tata Sons director Dr JJ Irani and Intuc president G Sanjeeva Reddy, said the steel major had just begun encashing on its huge investment of around Rs 8,000 crore invested over a period of 10 years.