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Steel: Employee rationalisation - Views on News from Equitymaster
 
 
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  • Mar 10, 2003

    Steel: Employee rationalisation

    India is slowly but steadily moving towards complying with the WTO regime with customs duty falling consistently in the recent past. Competition from global majors is also looming large. Given this background, being cost competitive is no longer an option for domestic companies. And India Inc. has realised the importance of cost-effectiveness and productivity. One of the measures seriously considered by companies has been the Voluntary Retirement Scheme (VRS).

    This much-avoided word of yester-years now seems to be a common tool for organizations to improve productivity and control costs. To put VRS in simpler terms, one could call it as employee rationalisation or right sizing. In fact companies offering VRS are being viewed as being on a positive footing.

    The wave of VRS is not confined only to the private sector players, who are known for taking such steps in order to improve their performance. The public sector units (PSUís) have also joined the race. Just to put things in perspective, we have compared two companies in this article. The chart below shows the reduction in the employee strength of Tisco and SAIL.

    It can be seen that the headcount in the two companies has been on the decline in the last 4 years. The number of employees in Tisco has come down from 64,753 in FY98 to 46,234 in FY02. This translates into a fall of 29%. Similarly, the public sector steel behemoth, SAIL, has also reduced its workforce from 176,147 in FY98 to 147,601 in FY02. This is a fall of 16%. This measure by companies has lead to higher productivity during the period under consideration. This is evident from the charts below.

    Once again, private player (Tisco) has outperformed its public sector peer (SAIL). The steel per employee contribution has increased from 46 tonnes in FY98 to 79 tonnes in FY02 for Tisco. In percentage terms, it is an improvement of 71%! Similarly, for SAIL, the steel per employee contribution stands at 66 tonnes in FY02, which has improved from 51 tonnes in FY98, up by 29%.

    Another parameter, which throws some light on the efficiency factor, is revenues per employee. For Tisco, this figure stood at Rs 0.9 m in FY98, which improved significantly by 65% to Rs 1.5 m in FY02. Similarly, SAILís revenue contribution per employee improved 26% from Rs 0.7 m in FY98 to Rs 0.9 m in FY02. It must be noted here that on both the parameters, Tisco has outperformed the public sector enterprise, SAIL, by a huge margin.

    The employee rationalisation exercise will continue to benefit players in the long-term. Though the productivity levels for Tisco could grow at a slower rate in the future, SAIL has lot more to do. Of course, being a PSU company has its own limitations. However, the company has targeted a reduction of about 40,000 employees in the next 4-5 years from the workforce of about 148,000 as on FY02. This is a step in the right direction and will help steel companies to compete more effectively on the cost front and consequently in the export markets.

     

     

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