780 accept VRS at Tata Steel as firm tries to lower employee costs

Mumbai: Some 780 employees have accepted Tata Steel Ltd’s newly introduced voluntary retirement scheme (VRS), which is part of an attempt by the company to lower employee costs from 12-15% of production cost to less than 10% in the next few years.

Tata Steel introduced its Sunhere Bhavishya ki Yojana scheme, equivalent to a VRS, in June, as one of its various initiatives to trim employee costs.

Margin pressure resulting from lower steel demand and prices has forced not just Tata Steel but also other manufacturers such as Uttam Galva Steels Ltd, Usha Martin Ltd and Essar Steel India to consider paring employee costs.

Under its scheme, Tata Steel employees can retire while continuing to draw their basic salary and other benefits, depending on their age. Suresh Dutt Tripathi, vice president, human resource management, said it was critical to cut down on costs because there is a tremendous pressure on steel prices.

The company, unlike its operations in Europe, does not plan layoffs in India as it is bound by a no-retrenchment agreement with the labour union. But it plans to go-slow on hiring blue-collar workers, said Tripathi.

“We need to look at how we maximize productivity with the same set of people that we have,” Tripathi said.

Tata Steel employs around 37,000 people, of which around 6,100 are officers while the rest are factory workers.

Tata Steel also has 30 other employee productivity programmes where current employees are retrained and redeployed in projects where they may be required more.

For instance, under its job-for-job scheme, employees can nominate their ward to take up employment at the time of their separation. The scheme also helps replace higher-salaried employees with less-paid ones, Tripathi added.

Hiring of management trainees from top technical and business schools has also increased, with more than 100 management trainees hired this year alone.

“It is a common practice by large companies to come out with employee-friendly separation schemes when they are trying to operate in a market situation where they have to keep a check on their production cost,” said Sangeeta Lal, senior partner (industrial), Transearch, an executive search firm.

She said hiring in steel companies has slowed considerably in the last one year as most of the projects are unlikely to take off due to various inherent and external problems.

Some have already cut jobs.

Steel wire manufacturer Usha Martin Ltd, in a recent conference call, informed analysts about its job cut plans. “The company on the call said it has cut about 165 jobs in the first half of this calendar year,” said an analyst with a domestic brokerage firm who did not want to be identified.

An email sent to the company on 29 September remained unanswered.

Kumar Kandaswam, partner at Deloitte and Haskins Pvt. Ltd, said retrenchment is more likely in areas that are not core to the steel making process.

“Some of the departments are core to the plant operations, those jobs will need to be maintained. However, other departments like material handling which are more temporary in nature, may get impacted due to the stress in the sector,” he said.

This could be true for companies such as Uttam Galva Steels, which is both hiring and cutting jobs simultaneously.

“We are in a unique situation, where we are cutting down jobs, but also hiring at the same time. We are restructuring our entire organization, we think certain areas are too burdened and certain areas require additional talent, and hence the combination. Also we are expanding; instead of only hiring fresh, we are also looking to rationalize, so the existing manpower can be adjusted to a large extent,” said Ankit Miglani, director, Uttam Galva, which at present employs 9,500 people.

Certain others such as Essar Steel are yet to decide on their options to rationalize employee costs.

“All cost-reduction opportunities are being aggressively pursued,” a spokesperson for the company said in an email response. The spokesperson added that no decision pertaining to a reduction of the company’s employee count has been taken so far. Employee costs amount to around 2% of revenue at Essar Steel.