Is Firing People with 3 Months Severance Pay Unfair? I don’t think so.

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Our earlier post, The Inflexion Point for the IT industry, generated a lot of interest. There were more than 140 comments and it’s been quite a revealing debate, with views from all angles.

One of the players fighting the TCS “layoff” posted what they say is the recording of a “termination interview” recently.

Now, let’s be honest and say that this could have been handled with more subtlety. I’ve had my mistakes too in firing people, and that deep sinking feeling in your stomach stays for days because you know you took away something beloved to the person: a job. But this interview should make the TCS HR think about how to lessen the impact.

Secondly, I’d like to put it on record that the firing is fair:

  • The person does have a lower rating than other people and probably the pay-to-performance ratio was low; but this should or could have been communicated better.
  • The person gets a three month severance; she doesn’t have to report to office in the interim. This is quite fair.

Some people demand one month for every year served as severance. I think this is just too much about entitlement; if the company gives it, that’s nice, but it’s not anyone’s right to such a severance. Three months is fair, no matter what. You could argue it should be six, and that’s a matter of judgement, but to say that this is inhuman is nonsense.

Thirdly, the only thing the employee was unhappy about was that her performance was being questioned. You can’t question someone’s performance and say that the underlying data that proves such underperformance is “confidential”. That is stupid and unfair. If the deal is that you’re getting rid of all “C” rated people since they’re rated lower than “A” or “B”, then it might be easier to just say that.

It’s as real to anyone that’s less privileged; we routinely fire long-standing household help without much of a “severance” and will balk at even giving one month’s notice to such people, and we expect six months when we are fired ourselves? I think that’s quite unfair. (And of course no one will fight for that maid or driver!)

Let’s Get Real: This Could Happen To You

There’s nothing earth-shattering about being fired. You do not lose your dignity. You do not lose “face” with your relatives. The job market was tough, you couldn’t keep up, and you need to reskill yourself.

When I fired myself in 2005 (from my own company, because I was adding no further value and just eating up my salary) I realized one thing: that I couldn’t survive being an IT programmer alone. I had some programming chops, but I realized I needed more than that; managerial skills are a dime a dozen and that’s not an advantage. So what would it be?

I was broke, I was just married, and I needed a job. I got one, luckily, thanks to someone who I cannot name because he doesn’t like me to. I helped build that company and I kept learning about markets, money and trading. When the company was acquired, I had saved enough to startup once again; and when that didn’t work out I fired myself all over again. It’s now about 10 years since then, and it’s been a rough and crazy ride, but that change was the best thing I did with my life.

Everyone cannot be that crazy, but the lesson that I learnt was that there is no such thing as job security. There is no entitlement to a job. There is a darn good reason why you can be fired tomorrow, and you’ll never be able to avoid it. What you can do is to be prepared for it and be ready to move on.

What Can Be Done: My 2 paise

Prepare for an alternate source of income and have an emergency fund. I now have 12 months of expenses in a safe place. I also have a source of income (investing in stock markets) that helps. (But then I don’t have a salary at all, and have invested and lost a lot of money in the education, so don’t just blindly follow). Today, such opportunities are even more:

  • You have the ability to buy small stakes in startups which might give you a great exit
  • You can buy real estate with savings and have rental income
  • You can buy stocks that might serve you well with dividends
  • You can even write a blog or create a web site in your spare time which might be a great asset at a later date.

None of these are sure shot successes but the diversification helps. It’s easy to say that there is no time for such things. But as we’re increasingly finding out, it might turn out we get too much such time.

Update: TCS Denies Layoffs, Says Less than 3K “involuntary” attrition

TCS has denied that it’s kicking out people. It says the number of people who left “involuntarily” are just 2574 which is 0.8% of their workforce. But many might be forced into a resignation, which would not count as “involuntary”.

However, my opinion is: no matter what the reason, getting fired is normal. TCS can’t be forced to keep people they don’t want. They can only up their severance, which would be a nice gesture. (3 months is nice enough in my mind) If we try to create laws to force companies like TCS to keep paying high salaries, we will be the losers. If you can’t fire you will not hire.

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42 COMMENTS

    • I will not theorize what is going to happen to TCS after the way they handled this affair. Just look at (google it) what happened to Wipro when they took some poor decisions after the 2008 recession.

      BTW: I would have appreciated if you had avoided the comparison with maids. A powerful argument bases itself on logic and evidence. I feel that people were likely instigated with this anecdote and deviated from making a sound argument with factual information. Anyway, I just recently came back to reality a few months ago and prepared myself for moving abroad permanently, will soon leave and will do my job as if I do any business – Stay only if it is in your best interests or else jump ship to gain fortunes.

  1. one could imagine being a founder/owner of a company and [re]think the situation. that could help.no hard feelings, unless “letting go” is for other than stated reasons.

  2. Hi

    Thanks for writing the practical as well as balanced approach to whenever layoffs happened. My brother was removed from zapak in the same manner which happened to be lucky for him.

    Its hard to sell same product always and make earning out of it

  3. Many IT companies have contract which prohibits employees from working for the same client in the new company for at least 1 year (sometimes enforced by the client !!). In such cases, they must give 1 year severance pay. You need to pay as long as you have some shadow of contract on the ex-employee.

    • I doubt if these contracts can be enforced, especially given Indian laws. Even if the company goes to court, the courts mostly tend to take the side of the employees in these matters.

      • yes, bonds and such contracts can be challenged. But the prospective employer would not like to get into such mess. so, they usually do not deploy new hires in such projects. The point is, if an employer says that employees can or cannot do certain things for an year, then they should pay for that full period.

  4. 3 Months is nothing great. They are contractually obliged to give 2 months of notice (which is common in most IT firms, not specifically sure of TCS). What they are actually giving the employee is one month of additional salary plus no obligation to come to office. Also, what is not know is whether they will give the person the full salary or only some components (like after removing the variable pay etc.)

    I think this is good if you are arguing that they are working within the law, as there is no law which protects any IT worker. However, I have seen a similar layoff in the client I am working for. The entire process was handled way better and along with help from lawyers also. There was an entire department laid off and every employee was paid one month’s salary for every year of service.

    It is very easy to point out that this is a lot of money to give, but I think this is quite a good goalpost to force companies to think slightly long term. If they think firing the employee will save more than their severance package, then the company is free to pursue it. It also gives the employee some security to look for a new job.

    PS: The way we treat our maids is not much different. If someone has given us a long period of service, we do not just fire them.

    • Your client was a better company than TCS, but TCS isn’t doing the wrong thing. Even IBM used to pay 1 month salary per year of service, but recently they stopped. There’s no entitlement to it. Just because some company does it (which is nice) doesn’t mean TCS should too. 3 months is also good enough, it’s one month more than required.

      I don’t see people treating maids like that. Even with long periods of service, they are told to just go back to their village, and given about a month’s salary extra. No benefits, no gratuity, no PF. For the shorter term maids, most people pay no severance when firing!

  5. Deepak,
    I totally agree with you – no one is entitled to a job for their life. Gone are the days where a person stick to one job one company until his retirement. Our dad’s, uncle’s did that. Now the world has changed, with so many opportunities around, in terms of technology, in terms of skill set etc.Where this layoffs disappoints me is the way these HRs deal with the fired employee. The HR doesn’t show any professionalism when stating the reason to fire an employee. They are so in effective when communicating to the fired employees.

    As far as the severance, I am sure no company in India would give you a 3 month severance (though I will be personally satisfied with a 6 month and my health insurance extended at least an year because that is what is possible to get from an Indian company). Talking about the severance package in India (not in TCS but as a whole), it definitely doesn’t match with that of western countries (US, Europe) when an employee is being fired. Tell me how many % of employees in India would have Employee Stock options when he or she is in a job, it is given to only those who exists in particular level in an organization (maybe a manger or lead level). At least 70% of employees working in Indian companies was not given this though it is one of their morale right. Also, what happens to the health insurance of the employee after he is fired, do they have options like COBRA (this is a labor act in the US) to continue the health benefits of an employee, no we don’t have such a system in India. Neither the organization does this to extend their health insurance. The attitudes of the organization should change and this would happen only if there is a regulatory overseeing the labour laws. I am not asking for an employee union, it is just the high time that the government realizes the need to strengthen the labor laws.

    Coming to the discussion of the maids being done in a similar way. You are right, that they are not given any benefits unlike a white collared professional and we fire them at our on will. I see a double speak from you as well on this topic (first you took a capitalistic view and then u-turned to a socialistic view when talking about the maids being treated similarly). Remember, TCS is a MNC (with huge profits in his kitty) is behaving as cheaply as it can to its own employee and that too in a very organized sector like Information Technology, the maids, wells they are working in an unorganized sector. Also, lets not forget that TCS even outsource the janitor positions to some agencies and do we know that they are given such benefits?- definitely “NO”.

    My final thought – This should all be a lesson for everyone here…For an employee he should understand and realize that Hiring and firing will go hand in hand and there shouldn’t be any sentiments about it.For the companies, this is just an evolving phase, show bit more maturity when hiring and firing the employees. A small request to the government, please make strict labor laws so everyone is the society gets what he deserves from his/her job or business.

    • Thanks good thoughts.

      On the maid piece – there is nothing socialistic about what I said. I just said if you think you deserve severance for the trauma of losing a job, so does a maid. Simple no?

      Janitors etc at TCS are hired through outsourced agencies, who actually employ these people. You’ll probably be surprised to know how things are changing, i.e. these agencies keep such people paid even if they can’t place them, they give them benefits etc. More now than earlier.

  6. I think the employee was not totally convinced of the appraisal process which happened to her in last couple of years. She seemed to accept that & carried with the flow because she was at onsite and now she thinks evidence talks otherwise. Ideally an employee should fight hard for every year’s appraisal irrespective of where he/she is because none knows what will be used against him/her later..

  7. A) it is absurd to bring in PF and Gratuity into comparison between white collar and domestic maids. The PF or gratuity others get is not ‘extra’. It is part of the original compensation. Only the payment mode is different ie deferred. maids prefer payment in cash. Ofcourse short term maids are fired willy hilly, but they also finds jobs easily. There is no monopsony in the maid labor market. maids are also under no illusion that their employees are in the business of looking out for their career while corporate HR doles out that bull all the time. Shouldn’t be surprising that many actually buy the HR nonsense.
    B) Lay offs are just fine, compensation and severance ,I agree is just a matter of negotiation . The inhumanity lies in doing it unprofessionally. The mature adult way of doing it would be to announce that the company has reevaluated its business model and it doesn’t need so many middle managers and therefore there will be a staff recast. Then proceed to make the criteria clear and implement it swiftly without dragging it long enough to manipulate markets and screw with the morale of those who are left behind in the employ.
    C) accept like Wipros Kurien that things have changed. Don’t lie repeatedly to employees that everything is a ok. that just makes things worse as people know what’s happening on the ground.

    D) stop hiding behind nonsense terms like poor performance when the only thing that performed poorly was the hiring and promotion strategy. Couple of hiring heads should roll as an example for others

    • Gratuity is not considered part of agreed comp – it only applies after you have passed five years. Most CTCs I’ve seen don’t include it. There is monopsony in maids too – the older they are the tougher it is to get jobs. Even drivers. Or maids that are “full time”. We dont compensate them.

      Yes, we shouldn’t buy the HR nonsense, just like we shouldn’t buy ULIPs and crappy insurance policies. We are missold all the time!

      Also I agree that doing a layoff unprofessionally sucks. I like your model actually – that “we have reevaluated our business model and don’t need you” approach.

  8. “You have the ability to buy small stakes in startups which might give you a great exit”

    How does one do this? Do you mean in your friend’s startup etc?

  9. I have seen layoffs earlier with Infy and I’ll tell you what is wrong with this one.
    1. This is purely profit driven and that is not wrong in itself but they are misleading current and future employees by saying that this is performance driven. If they tell now that this is profit driven then the fired employees (and everyone else) should not complaint but it will also tell fresh recruits what to expect and hiring will also be impacted to some extend.
    2. The firing is of people from a particular experience range. This fact is very cleverly hidden during the this year vs last year data. 1% of 300k or 10% of 30k gives the same number, but tells a very different story.
    3. Finally if you know the banding process of TCS, you’ll also know what is so wrong with these during and will hurt TCS directly in the long run.
    I do not condone either performance or profit driven layoffs as long as the actual and true reasons are clearly told.
    Infy suffered to some extend by the layoffs.

    BTW that comparison to house-hold maid was not required. I for one definitely treat them better and most corporate employees definitely treat their employer better than how maids do.

    • I don’t think the comparison is unfair. I don’t think most people treat them “better” than corporate employers – they hardly get breaks, they have insane working hours, hardly any holidays etc. Corp employees get an A/C working place, benefits (like health insurance) and so on. So at best you can treat them better than your neighbours treat them. There is a lot wrong in India with the maid model and I hope we fix it. But to say that we deserve severance but they don’t, just because they are uneducated or some such, is a bad thing – it’s fair to compare, because both are doing jobs.

  10. So what about >>many might be forced into a resignation. Why it should happen? There are many such avoidable practices even big companies follows. Like forcing employee to serve full notice period (not allowing buy out of the notice period as per contract), while they can just remove you from immediate effect. Changing work contract just by sending a company wide mail. Having Industry agreement not to give more certain % hike to a new hire. Judging and paying based on number of years of experience it self is in efficient. Hiring freshers, keeping them on bench for 6-8 month and then when there was no work to allocate, firing them based on a test which was set by the company them self and cut off marks were kept secret, why this drama of test?

    Bottom line is companies are not fair in their dealing with the employees. All big retrenchment in US, employees are paid much better then the service terms.

  11. Get real, folks. 3 months severance is definitely fair. If you cant find yourself another job in 3 months, then isn’t it obvious why your company let you go? The only thing i would have done differently is allow the employee to stay on the company rolls for the entire 3 months instead of making him/her leave in a month.just might make it easier for them to find a new job

  12. It is better negotiated at the time of joining for severance pay as part of contract. Notice periods can provide comfort to look for a job. But Due to Higher pay in IT industry, they tend to have more & big Financial Obligations which troubles them more than finding another job. Also joining lower pay than previous job also provides them a big resistance.
    Whereas in other industry, Moderate Pay, Less Attrition and Lot of benefits comforts it more. there should be saturation point between IT and Other industry; until then it tend to happen. In todays TOI, HC give restraint order on Termination of Pregnant women of TCS for 4 more months until delivery by citing her medical status.

  13. Your Analogy of driver/ maid servant is incorrect. My driver or maid servant can stop working for me the day the intend to do so. They don’t give me notice. Second of all the offer letter says they would give 2 or 3 months of notice period pay hence they have to go by that. If i quit also they ask me to server the notice period.

    • Well then that means it’s fair for the company to fire you for any reason if they pay you the notice period fees? That’s really what it is then. If the concept of severance is “oh, this disrupts my life, pay me for that disruption” then it applies to maids too. If the concept is the contracted notice period payout, then that’s what it is.

  14. Deepak,
    If you listen carefully, she also gets some of the benefits, beyond the salary, as highlighted by the HR. Which in my opinion is exceedingly fair.
    Thing is as Indians, we do not understand the concept of being fired. And when it does happen – we tend to take it way too personally. I think we seriously need to stop deciding on our Identity in life on the basis of where we are employed. There is more to life than a JOB no?

  15. Nice article. I have a comment about what you say here:

    TCS has denied that it’s kicking out people. It says the number of people who left “involuntarily” are just 2574 which is 0.8% of their workforce. But many might be forced into a resignation, which would not count as “involuntary”.

    The reason that they have been been forced into resignation is exactly why it is called voluntary. When people resign on their own, it is called “voluntary attrition” since they are voluntarily leaving. When the company forces them to go, it is termed as involuntary attrition. There is also the categorization as “desirable” and “undesirable” attrition that companies track separately. The idea is clear. If a poor performer leaves, it is desirable attrition.

    • Haha, good point :) What I mean by involuntary is that if a person is told in a letter “you are terminated”, then that’s involuntary. If a person submits a resignation even if he’s coerced, it will be considered voluntary, at least according to the labour act.

      • Oh okay. As you know, companies are basically covering their asses while “making them resign” so that it is, as far as documentation is concerned, a voluntary act. That’s when the clips like these leak out proving that people are being forced to resign. I wonder what the Labour Act says about hiring people who are demonstrably non-performers. I have seen companies still use tactics to make them resign rather than have to go through the obligatory “performance improvement program” and all that.

        By the way, that HR lady in that recorded conversation sure seems to have an MBO or something: Master of Bullshit and Obfuscation, don’t you think? The guy who initiates the conversation seems more reasonable and sensible. The HR lady is just bullshitting perhaps thinking that she doesn’t need to make any sense (individual data, scaleability, trickling down, performance is the reason–but your are not under performing, something that we don’t have privy to look at (sic)). It’s because of the many like this that people trash HR folks, I guess.

  16. This matter is now sub judice as people are approaching the court.As far as i know Indian labour laws prohibit layoff unless the company is incurring losses.Obviously employees can be sacked for disciplinary reasons as happened in Maruti.The 1947 Industial Disputes Act states any establishment above 100.have to seek governments approval for layoff.Recently rajasthan govt modified the law to increase the number to 300.I find lot of comments totally ignorant of the law .There is a misconception that IT companies are out of ambit of Labour law,even the SEZ and STPI benefits are only tax benefit and exemption on work timings.The Fundamental Right to form associations or unions is accorded to all citizens under Article 19 (1) (c) of the Constitution of India and therefore, like all citizens, even IT employees can form and/or join Trade Unions.I have made this comment from a legal point of view only.The discussions above are more from idealogical view point.These comments r rather one sided.What happened to free market idealogues when these very companies lobbied to get land almost free of cost from various state governments.By that logic telecom companies getting free spectrum in 2G scam were atleast providing cheap service to the Indian consumers,hence there was an element of public good in it.The IT companies which always lobbied hard for free land and associated infrastructure,tax benefits under STPI and later SEZ and MAT lowering what public good are they serving?It seems the mantra is “Privatise the profit and socialize the loss “.Deepak i m afraid free market exists only in theory books of economics,even the US bailed out wall street banks(the most ardent free markets fanatics in reality turned out to be crony capitalist) and auto companies ,so lets get real and not fool ourselves with theories which exist only in the realm of intellectual discussion.

    • Actually hire and fire is how life is. I don’t really know the labour law but people have been getting fired for a long time, and in this case performance is quoted as a reason. (I’m sure TCS has, or will find, documentary evidence if a labour inspector comes along)

      This is not intellectual, It’s real. I’m sorry but your concept that it violates this law or that someone gave that land for free so please don’t fire etc. is just as much theory!

      • How can TCS fire people who are meeting the expectations set of them and meeting 100 percent of their goals? How are these people classified as underperformers? Can they prove that the freshers will perform better than a 10year experienced guy?

  17. Why not a demotion ?

    According to section 25 of Industrial disputes act , the principle of layoff is “last come and first to go”. TCS has not published any seniority list as the act mandates. The IT companies have refused to accept their so called associates as laborers , however as you also know that they are coolies with B.Tech there is no reason why they should not be considered as laborers. You have yourself pointed out that the issue is too many middle level managers. Then why not demote them instead of firing them to where they were with reduced pay. If they find the condition unacceptable they may leave themselves but cannot blame the company for layoff. Instead of hiring 55,000 fresh graduates you can demote the bogus people clouding the managerial position to billable works.

    It may not work well with the overall efficiency that a fresher may provide. Also a fresher is more motivated to work as a code coolie since it is easier to fool him with promises of onsite and other perks as compared to fooling a 35 year old mid-level manager. But then I have seen people as old as 55 working as coder though they may be drawing up higher salaries. The issue with TCS is too many managers and too many files generated by a software called Microsoft Office.

    Let’s teach the C/C++ for a better future of their own and the company

  18. I think this is a result of wider problem in Indian workforce of efficiency, You will find most of the employed person (say beyond 4 years of work ex) normally goofing off during work times, you can find them on FB& Whats app all the time but on the efficiency during working timings we as Indians fail miserably, I feel there are simply too many MANAGERS who somehow feel they are entitled to not working at all. I call this voluntary Unemployment, Many 30+ are choosing to pass the buck rather than actually work in my own experience so we are going to see more & more of this…..

  19. I think 3 month package is fair enough. One thing employers should possibly do is to take the no of years of service also into consideration. I liked your comments about drivers/maid etc. not many take care of them.
    I don’t quite agree with the text bookish 12 month or 6 month of expense thing. what would one do after 12 months?. Personally i feel its going to be very difficult for 15+ yr ( or even 10+ yr) folks regardless of whether they are in service/product based company and manager/individual contributor. I think one should do things with an assumption that their corporate career will end at 40. at the most of they will have a job for 18 years. ideally one should have a debt portfolio that returns your expense. and the remaining in direct equity. (assuming they understand it). if they cant understand equity, they should look at some alternate source depending on their skills, passion etc.

  20. Deepak,
    Good continuation from previous post. I agree with your view.

    But do you think such incidents will lead to unionization of IT industry in India. As you said, this (hire and fire) is real and inevitable. So there could be elements that are looking to make a political career out of it. Protests, bad press and negative stock movements. All the more reasons, that management should handle it carefully.

  21. Companies do not fire just for fun of it. Only when it’s consistently pinching bottom line that this measure is resorted to. And we shouldn’t forget that we are primarily working in a capitalist private sector. It is not a goverment job and company is not ‘parents’ to take care of us till we go frolicking and eventually find a job after a year.
    Firing does cause disruption of normal life and people would go into depression if they were not ableto pay their bills, that is why labour laws exist and that is why 3 months is a gracious period to take care of you.
    The facility to be able to not come to work meanwhile effectively means instead of firing today at this moment, you have been a grace period to go find a suitable job for yourself. 3 months in any ocuntry of the world is enough to get a normal job for experienced people. If not, then there is some introspection and skill upgrade required. However, thinking that company needs to take care of under priviledged who cannot take care of themselves is socialism. I have been fired twice myself, but have always managed to put all my energies together to get a decent job within a month. It all comes down to how much you want to earn for yourself and how much you have to beg to get.

  22. Hi Deepak,
    Liked your previous article “The Inflexion Point for the IT industry” as well as the current one.
    Thanks for such a brilliant analysis.

    Regarding the exit interview recording link you have provided in your article, just wondering why companies not give such employees an option of going for a demotion or a pay cut rather than outright firing. I mean if that employee had agreed to take a 35 to 40 % person pay cut, she would still be more value for money to the company that a fresher. That way, it is a win-win situation for both.

    Also, the current culture in Indian IT companies makes it uncool to be a coder for more than the first few years. The thought process is if you are such a great programmer, why are you still coding? You should be writing word and excel documents and approving timesheets by now. And if they are that good, it should not be difficult for a middle manager to learn new programming skills and start over at a slightly bottom level again.

    Just the thoughts of a layman; after all, I have never had experience running a business like you have.

    Regards,

    Pankaj

  23. I have a few friends at TCS who tell me that they follow the bell curve system for appraisals, i.e. the managers have to give a segment of their team members a bad review even if they don’t deserve it. I know of cases where managers at TCS give different team members a good appraisal based on something like a round robin system (one guy gets a good review this time and someone else the next time) and team members who kiss their managers arses probably get good reviews :-) Now some of those people who got fired probably did not deserve to get fired due to TCS’s faulty appraisal system. The bell curve system was initially used by the CEO of GM (I think) to reduce an employee head count when GM was bloated and this same system is credited for Microsoft not innovating in the last decade. The bell curse system generallty sucks for appraisals.

    However I completely agree with you that employees are not entitled to a job and I think that giving employees 3 months severance pay is extremely fair.

  24. There seems to be a lot of people unhappy with the comparison made firing of maids.
    How about firing of skilled people in the unorganised or semi-organised sector. I have seen personally no severance pay being given out to people who are fired.
    TCS is one of the financially strong companies in our country. There exists countless organisations where there is far less of a severance pay (if at all).
    Most organisations would ask someone to leave with just a month’s severance pay.

    For those of you who think that is unfair, think about this.

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