Friday, October 15, 2010

Overstaffed and underutilized

Ramarao Patil is feared and respected most for his very deliberate approach to cracking any business problem. Unlike many of his other Vice Presidents in the company, he is neither flamboyant nor speaks an extra word. He is cautious about what he has to say. When he speaks, there is a note of finality that, eliminates a request for anything to be to be repeated twice or ignored.

The business was growing no doubt, but not exactly booming enough to merit a celebration. The issue in question was: the HR manager had put up a budget for 15% increase in wage bill towards promotion and increment. Many of his peers also wanted the HR manager to push it through so that they can ‘please’ their subordinates. There was a popular perception that people stayed back for money; if increments are substantially higher than earlier times, it will contain the levels of attrition as well.

Ramarao was simply shocked to learn about the proposal to increase the wage bill by 15%. The business had not grown so substantially to merit such a raise, he reasoned to himself. He unilaterally endorsed the principle of recognizing and rewarding the deserving people; but such people were a minority and did not account for more than a mere 10%. The balance 90% of the workforce, regardless of the levels of inflation or market pressure, definitely did not make a strong case for a 15% raise. Anyway, he decided to keep his reservations to himself. He expected a better sense of judgement to prevail upon the minds of the HR head, the CEO and the Board of directors. Should an occasion arise, he decided to table some facts that should help them reconsider the budget.

Just as predicted, the HR head convened a special meeting, chaired by the CEO and the CFO seeking an approval for the request for the increment budget to be approved. Everybody around the table stayed silent, hoping that the meeting will pass off peacefully without any protest so that they can return to their departments and pass on the cheerful news. Predictably, Ramarao broke the silence and challenged the HR head to justify his request.

“ The mood around the table suggests that I too join everyone round the table and let the proposal go ahead. I wish I could. I am not a HR professional. Yet, I am troubled by a few aspects that this committee should consider before according it the final approval.” Turning his attention to the HR head, “Sir, can you help me understand a few realities we have”?

  1. The salary bill for the company rides at 70% of the revenue, while for Infosys it is only 48%. These are the published figures from their balance sheet. It is therefore a fact that we are paying 22% more wages than the Industry leader. To raise the wage by another 15% on top of that would mean growing the gap with the industry leader to 25.3%. Should our endeavor be to reduce the gap or widen it?
  2. We have 400 managers and supervisors managing 2000 employees. That means we have one manger for every 5 workmen; the corresponding number for competition is 15. If we were to apply the ratio of one of supervisor for every 15 employees, we should have only 135 managers on our rolls; we have 265 managers in excess. What does it mean? Our supervisors are only 33% as productive as their counterparts in the best companies. Alternatively, the quality of our workforce is so poor that it needs three times more supervision. I am not asking for retrenchment; I want our team to address the pressing need for us to increase not the number of supervisors but the managerial productivity of the supervisory personnel.
  3. The 400 supervisors and mangers are stacked one upon the other in 11 layers of titles and subtitles. The competition has only 5 layers from the Chairman downwards to the level of trainees. Do these inflated titles and twice many layers give people the empowerment necessary to generate four times the productivity levels of our industry leader? We earn a mere US$ 3000 as profit per employee against their US$ 12,000 annually.
  4. Finally, we must dispense with this illusion that seniority should reflect the quantum increase in salary levels. Is each level made out to be distinctive enough to differentiate itself by competency levels and justify the wage bracket it is assigned?

I wish I could support everybody but I cannot. If all the profits earned are paid away as wages to employees, I am sure the CEO and the CFO will have to find additional ways of funding for depreciation, dividends to shareholders, money for launching new products, opening up markets and undertaking research & development. Kindly rethink this proposal from the standpoint of shareholders; after all, as senior managers, we also need to earn a dividend on the stock options we hold. Is a wage increase is really affordable and necessary? Please reconsider. Thank you.”


No comments:

Post a Comment