Workforce rationalization in IT industry

Till not so long ago, information technology (IT) companies were referred to as HR factories with elaborate training systems that transformed thousands of amateurs into billable professionals every month. If people left, it was for better jobs and IT’s HR managers were famous for bemoaning the talent shortage. But as the effects of the global slowdown trickle down to India and dollar revenues decline, these stalwarts are realising that it is not going to be business as usual. They may not be going about it with the fanfare of Jet Airways, but the IT majors are downsizing quietly, using a weapon that’s been in their arsenal all along the Performance Improvement Plan (PIP).

The innocuous sounding PIP, traditionally a tool meant to help employees shape up, is now also being used to get them to ship out. Over the past year, Wipro has shown the door to 1,000 employees, IBM to 700, TCS to 500 and HCL to a similar number. In all cases, the move is said to be linked with (non)-performance. And while these numbers may often be less than 1% of the company’s total workforce, the move from hiring to firing in triple-digit figures in the IT industry is enough to make people sit up and take notice.

In the last few months, the number of employees on a PIP has gone up to about 3% of the workforce as compared to 1% in the past. While the number of employees on the PIP has remained the same at about 4-5% of its total strength, the process has become more refined. At Wipro the average number is 4-5% of the total workforce and in today’s circumstances says Wipro’s executive vice-president, they are people “we do not regret having to let go of.”

PIPs are supposed to give employees a pre-determined amount of time usually 90 days to improve their performance. If they are still found lacking, HR helps in “counselling them out of the organisation.” Most times while they ask about 30-40% of the employees on a PIP to leave, an equal number tend to walk out on their own. But in the current environment, where jobs are scarce, there has been a drop in the number of employees voluntarily deciding to move out.

As business volumes have slowed down, IT companies realise it is no longer viable to have a ‘bench strength’ that runs into hundreds of employees given that employee costs is the biggest fixed cost on a company’s balance sheet. At the same time, the criteria of what constitutes acceptable performance is changing. The good years are believed to have resulted in certain laxities in the system, which are now being corrected. A TCS spokesperson says that given the size the company has reached over the last five years, it has become more stringent with its appraisal process to ensure that scale has no impact on organisational efficiency and performance. As a high performance work ethic organisation they have to recalibrate benchmarks year on year. Since the PIP outcomes are gauged at an acceptable level of performance, the PIP parameters also get aligned to the new benchmarks.

Personal Business Commitment program which employees used to set their goals and targets for the year. But even here, the company does this.

IBM has categorised employees as being ‘marginal performers.’ An employee is a marginal performer when his or her net contribution fails to meet an acceptable level of performance for the assigned position. If an employee on a performance improvement plan fails to improve his performance in the pre-decided time frame, strong disciplinary action might be taken which can result in dismissal as per the company policy.

The key element that has to change in the current environment is the nature of the communication which must be more upfront. In a growth environment, companies tend to use ‘subtle’ means like giving a negligible pay hike or withholding variable pay, and often employees get the hint and move out on their own. In the current environment, you will find people who don’t pick up on these hints. This is where the managers have to step up and communicate with them and let them know that they have to go.

Most companies have a number of checks in place to ensure the consistency and fairness of these plans. When employees are found not to match up to the goals set, they have the option of looking at internal job postings in another department, or are put in touch with head-hunters to try and smoothen the move out.

Mature organisations tend to have robust PIPs as a part of their Performance Management Programs. But they should take care to avoid a knee-jerk implementation of such plans, a situation where the pedal is pushed in challenging times and eased in boom times.

What has really changed is the tolerance for non-performance. When the going is good, you have the flexibility to take an easier view for someone who is tentatively poised. Today, the tolerance for non-performance is being re-set.