Ratan Tata, the former chairman of Tata Sons who passed away on late October 9, has left his huge legacy of corporate practices and philanthropy. The way he handled matters at the companies with a more humane approach made him unique and earned him immense respect. One such case was related to Tata Steel when it had to reduce its employee count to half in 1990s.
During the 1990s decade, Tata Steel faced financial crisis and existential issue due to high wage bills, global competition due to liberalisation and hostile takeover fears following economic reforms. The company had two options left — either close down itself completely or reduce the employee count from 80,000 to 40,000.
Tata Steel’s wage bill was high due to the company’s culture of paying more than recommended. For such company, both the options were tough choices. Eventually, the company came up with an employee separation scheme or voluntary retirement scheme, which became a benchmark of a humane approach to layoffs.
The employee separation scheme included:
1) Full salary till employees’ notional date of retirement. Employees over 55 were paid their current salaries until they reached retirement age. Employees between 45 and 55 were paid 1.2 to 1.5 times their salary until retirement.;
2) Employees and their families received medical insurance for life;
3) Employees were allowed to stay in company quarters for three years while they found a new place to live; and
4) If an employee died before retirement, their family continued to receive their full salary until retirement.
Industry veterans strongly discouraged Ratan Tata from going ahead with the scheme and said “Are you guys crazy?”.
Despite the opposition, the Ratan Tata-chaired Tata group went ahead with the scheme and provided support to the employees in lieu of layoffs.
Fortune magazine listed the scheme as one of the world’s top 10 best industrial decisions.
Ratan Tata, who held 0.83 per cent stake directly in Tata Sons, was the chairman of the holding company between 1991 and 2012.
Tata, who remained the Chairman Emeritus of the sprawling salt-to-software conglomerate till his death, breathed his last at Breach Candy Hospital in south Mumbai at 11:30 pm on October 9. A recipient of the Padma Vibhushan, India’s second-highest civilian award, Tata was put under intensive care on October 7.
Ratan Tata was laid to rest on October 10 with full state honours in Mumbai.
