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TCS says bonus payout not to hit cash flow

The company says the idea behind the bonus payout is to allow the 250,000 employees to use it the way they want to

BS Reporters  |  Mumbai

April 18, 2015 Last Updated at 00:37 IST 

The country's largest information technology (IT) services provider, Tata Consultancy Services (TCS), believes the huge cash payout in FY15 will not affect its cash flow or its ability to invest in growth areas. The company also said that the idea behind the bonus payout was to allow the 250,000 employees to use it the way they want to.

Rajesh Gopinathan, chief financial officer, said that even after the payout of Rs 2,628 crore as employee bonus, the company is left with an additional cash reserve of Rs 1,000 crore.

"This year has been very good from a cash-conversion perspective. We generated about Rs 21,000 crore in cash, which is almost 97-98 per cent of our profit after tax (PAT) without the employee bonus. We have paid Rs 17,000 crore towards dividend, spent about Rs 3,000 for capital expenditure and another Rs 500 crore for investments. But ended with Rs 1,000 crore more cash than we started the year with," said Gopinathan.

Gopinathan added it was after a lot of deliberation that the management and the board agreed for a payout. "The fact is that there has been a 10 times value creation. We listed at about $8 billion and we are today at about $80 billion. The intention is to reward value that has been delivered," he added.

In 2010, to marks its 30th anniversary, Bangalore-based IT services provider Infosys had allocated a minimum five shares to every eligible employee. In addition, every employee will get an incremental share for each year of service.

"It is simpler to administer, especially across a global workforce. Whereas if you had to give it as an equity instrument, it becomes much more complex," Gopinathan added.

The one time pay out will impact 250,000 employees. TCS has a total headcount of 319,656 employees at the end of fiscal year 2014-15.

Ajoy Mukherjee, Global head HR, TCS also added that the exercise was not a tool for retention of employees as the company has seen its attrition going up at 14.9 per cent for the fourth quarter. "Our attrition has been going up continuously. Our goal is to bring it down definitely. We were around same level in Q1'FY12. we have been doing a lot of work on the employee engagement side. The bonus payout should have a benefit (on reducing attrition), but that is not the intent why we did it," said Mukherjee.

The payment for employees within the country will be at a gross level, including the basic pay and statutory payments, while for those outside the country, it is a separate one which would also include their bonuses.

HR experts feel that the company's action to pay cash to employees rather than EsoPs augurs well with the changing times.

Sunil Goel, Director of human resources firm GlobalHunt said that TCS has been a consistently profitable company and now that the US economy is picking up, they wouldn't want to miss the bus by losing key talent.

"Rather than an EsoP, which is long-term in nature, bonuses would offer immediate cash to employees in the next 1-2 months. 

Since US is one of their biggest markets and it is seeing a good pickup, they would want to retain people and giving a bonus is one of the best tools."

HR experts also feel that EsoP is generally restricted to a few and hence majority of employees do not get the benefit. "I also feel that this has been done to balance the negative backlash it has received after the news that they are asking people to go based on performance. This send a positive message across the employee. Also EsoP's is generally restricted to a few senior management people," said Kris Lakshmikanth, chairman, Headhunters India.