BHEL WAS ABLE TO PREMPTIVELY SEE AN EXCESS MANPOWER BURDEN AND RIGHTSIZE IT TO PERFECTION. IN FACT, IT PROVED TO BE MORE PERFECT THAN THEY HAD ACCOUNTED FOR!
Flab doesn’t pay, be it an individual or a company (w.r.t. payrolls for the latter). It becomes extremely tricky to handle issues like salary cuts, pay packages, layoffs, cutting down retirement benefits, et al. On a global scale, bloated wage bills have led even giants like GM into bankruptcy.
However, the experience of engineering firm Bharat Heavy Electricals Ltd. (BHEL) is unique, one where they faced an issue of a ballooning wage bill and tackled it in a timely way, hence prempting possible future issues that could have led to activism. In fact it was a success so profound that they had to regret it later!
BHEL had an experience of implementing VRS in the 1980s, which a lot of people did not opt for. It wasn’t that critical for the company then. But in the late 1990s, the company was facing a scenario of erratic and subdued demand. Under then Chairman & MD K. G. Ramachandran, BHEL saw its order book falling from Rs.72.21 billion in 1999-2000 to Rs.55.48 billion in 2000-2001. Between 1999 and 2000, there was a major drop of in volumes, which went down by as much as 52.89% for power transformers. Due to a general slowdown, projects were either getting discontinued or deferred by customers. In addition, due to the increase in retirement age from 58 to 60 years, natural attrition dropped. In that duration, the company took up three rounds of VRS to rightsize the company and around 15000 people opted for it in all. The scheme involved an exit payout of Rs.5 lakh along with provident funds, medical and gratuity schemes. Besides, a provision was offered for one and a half months of salary for every year completed or years of service remaining, whichever was less. Notably, out of 8000 people who took the VRS in the first round, 65% were in the age group of 55-58 years and 17% were above the age of 58. Apparently, rumours of government plans to roll back the increase in retirement age was a key motivator for these employees. They were obviously worried that they would lose the benefits of two years if they didn’t bite the bullet. BHEL planned to implement the scheme from July 1 to September 31, 1999; but had to close it on July 24, since its target of 5000 employees was crossed by miles. The cash outlay ballooned to Rs.3.86 billion compared to the targeted Rs.3 billion for the scheme. In the second round in 2000, the company carefully chose its eligibility criteria to only allow poorly qualified or underperforming employees to opt for VRS. B. Shankar, GM-HR, BHEL, comments to B&E, “Due to the VRS, we reorganised ourselves. Efficiencies have gone up as work got distributed among existing people.”
Flab doesn’t pay, be it an individual or a company (w.r.t. payrolls for the latter). It becomes extremely tricky to handle issues like salary cuts, pay packages, layoffs, cutting down retirement benefits, et al. On a global scale, bloated wage bills have led even giants like GM into bankruptcy.
However, the experience of engineering firm Bharat Heavy Electricals Ltd. (BHEL) is unique, one where they faced an issue of a ballooning wage bill and tackled it in a timely way, hence prempting possible future issues that could have led to activism. In fact it was a success so profound that they had to regret it later!
BHEL had an experience of implementing VRS in the 1980s, which a lot of people did not opt for. It wasn’t that critical for the company then. But in the late 1990s, the company was facing a scenario of erratic and subdued demand. Under then Chairman & MD K. G. Ramachandran, BHEL saw its order book falling from Rs.72.21 billion in 1999-2000 to Rs.55.48 billion in 2000-2001. Between 1999 and 2000, there was a major drop of in volumes, which went down by as much as 52.89% for power transformers. Due to a general slowdown, projects were either getting discontinued or deferred by customers. In addition, due to the increase in retirement age from 58 to 60 years, natural attrition dropped. In that duration, the company took up three rounds of VRS to rightsize the company and around 15000 people opted for it in all. The scheme involved an exit payout of Rs.5 lakh along with provident funds, medical and gratuity schemes. Besides, a provision was offered for one and a half months of salary for every year completed or years of service remaining, whichever was less. Notably, out of 8000 people who took the VRS in the first round, 65% were in the age group of 55-58 years and 17% were above the age of 58. Apparently, rumours of government plans to roll back the increase in retirement age was a key motivator for these employees. They were obviously worried that they would lose the benefits of two years if they didn’t bite the bullet. BHEL planned to implement the scheme from July 1 to September 31, 1999; but had to close it on July 24, since its target of 5000 employees was crossed by miles. The cash outlay ballooned to Rs.3.86 billion compared to the targeted Rs.3 billion for the scheme. In the second round in 2000, the company carefully chose its eligibility criteria to only allow poorly qualified or underperforming employees to opt for VRS. B. Shankar, GM-HR, BHEL, comments to B&E, “Due to the VRS, we reorganised ourselves. Efficiencies have gone up as work got distributed among existing people.”
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
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IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
