SAIL's Voluntary Retirement Scheme



Themes: HR Practices and Policies
Period : 1999-2001
Organization :SAIL
Pub Date : 2001
Countries : India
Industry : Metals & Mining

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Case Code : HROB002
Case Length : 07 Pages
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SAIL's Voluntary Retirement Scheme | Case Study

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The Jolt

In February 2000, the SAIL management received a financial and business-restructuring plan proposed by McKinsey & Co, a leading global management-consulting firm, and approved by the government of India (held 85.82% equity stake).

The McKinsey report suggested that SAIL be reorganized into two strategic business units (SBUs) - a flat products company and a long products company. The SAIL management board too was to be restructured, so that it would consist of two SBU chiefs and directors of finance, HRD, commercial and technical.

To increase share value, McKinsey suggested a phased divestment schedule. The plan envisaged putting the flat products company on the block first, as intense competition was expected in this area, and the long products company at a later date.

Financial restructuring envisaged waiver of Steel Development Fund4 (SDF) loans worth Rs 50.73 bn and Rs 3.80 bn lent to IISCO. The government also agreed to provide guarantee for raising loans of Rs 15 bn with a 50% interest subsidy for the amount raised. This amount had to be utilized for reducing manpower through the voluntary retirement scheme. Another guarantee was given for raising Rs 15 bn, for repaying past loans.

Business restructuring proposals included divestment of the following non-core assets: a) Power plants at Rourkela, Durgapur & Bokaro, oxygen plant-2 of the Bhilai steel plant and the fertilizer plant at Rourkela.
b) Salem Steel Plant (SSP), Salem.
c) Alloy Steel Plant (ASP), Durgapur.
d) Visvesvaraya Iron and Steel Plant (VISL), Bhadravati.
e) Conversion of IISCO into a joint venture with SAIL having only minority shareholding.

The Dilemma

The major worry for SAIL's CEO Arvind Pande was the company's 160,000-strong workforce. Manpower costs alone accounted for 16.69% of the company's gross sales in 1999-2000. This was very high, compared with other steel producers such as Essar Steel (1.47%) and Ispat Industries (1.34%). An analysis of manpower costs as a percentage of the turnover for various units of SAIL showed that its raw materials division (RMD), central marketing organisation (CMO), Research & Development Centre at Ranchi and the SAIL corporate office in Delhi were the weak spots. There was considerable excess manpower in the non-plant departments. Around 30% of SAIL's manpower, including executives, were in the non-plant departments, merely adding to the superfluous paperwork.

Hindustan Steel, SAIL's predecessor, was modelled on government offices, with thousands of "babus" and messengers adding to the glory of feudal-oriented departmental heads. SAIL had yet to make any visible effort to reduce surplus manpower. A senior official at SAIL remarked: "If you walk into any SAIL office anywhere, you will find people chatting, reading novels, knitting and so on. Thousands of them just do not have any work. This area has not even been considered as a focus area for the present VRS, possibly because all orders emanate from and through such superfluous offices and no one wants to think of himself as surplus."5 With a manpower of around 60,000 in these offices and non-plant departments like schools, township activities etc, SAIL could well bring down its employee strength to less than 10,000.

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4] The Steel Development Fund was created in 1978 through an extra levy on SAIL and The Tata Iron and Steel Company (TISCO) with the objective of loaning the two companies funds at subsidized rates.
5] Financial Express, June 30, 1999.