India’s tech solutions company Satyam Computer Services, which experienced some trying times recently because of internal financial frauds, has decided to cut staff costs. It said today (June 11) that up to 10,000 employees will be affected.
The company has announced that it is launching a one-time program, effective this month (June 2009), which is aimed at addressing staff costs.
The program, called Virtual Pool, is applicable to people based in India. It asks them to take time-off from work on a reduced pay structure – for up to six months – while they continue to retain their employment with the company.
“The recessionary climate that has seriously affected the IT industry, in addition to the unprecedented set of events that Satyam faced recently, has added to its pressures,” says Kiran Karnik, chairman of Satyam’s board.
The trouble had begun at Satyam last year when on Dec. 16, Satyam had announced that its Board of Directors approved proposals to acquire a 100% stake in Maytas Properties and a 51% share in Maytas Infra. Maytas is engaged in infrastructure construction and asset development. The total payment for both the acquisitions was estimated to be US$ 1.6 billion – $ 1.3 billion for the 100% stake in Maytas Properties and $ 0.3 billion for the 51% stake in Maytas Infra.
On this move, Satyam’s shares had dropped by nearly 40%, as investors were angry over a technology company spending money on the construction outfit in which Satyam’s management has stake. And questions were raised about Satyam’s corporate governance.
Also, World Bank had banned fraud-laden Satyam and a couple of more Indian companies to do business with it.
As a damage-control measure, India’s Ministry of Corporate Affairs had disbanded the Satyam’s Board in January and appointed three new directors. The move was aimed to win back the confidence of shareholders, employees, and other stakeholders in the local and global markets.
As the company has been facing some severe cash crunch after the fraud was exposed, it was desperately looking for sources for funds. Selling of its stake was one of the options. In April, it selected Venturbay Consultants, a subsidiary of Tech Mahindra, to acquire a controlling stake in the company. The move helped Satyam bring Rs. 1,756 crore (nearly US$ 351 million) into the company.
However, because of its perpetually weak market position, the layoffs were always in the cards. In fact, in January My Techbox Online had warned Satyam employees about this expected maneuver, suggesting them to form software cooperatives. (Read: Satyam Employees can Form Software Cooperatives)
But most preferred to sit on time bomb. And now they’re being asked to go when the job market has already gone from bad to worse. The sweetly flavored “Virtual Pool” program will target people who have not been in billable roles for three months or more and will include support resources.
The affected people will receive their basic pay, in addition to Provident Fund and medical insurance. The employment status continues undisturbed and based on business requirements, employees may be recalled and reinstated at full pay and benefits, says the company.