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W15144
TATA MOTORS: COMPENSATION RESTRUCTURING
Zubin R. Mulla, Vineet Soni, and Tanushree Mishra wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.
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This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2015, Richard Ivey School of Business Foundation
Version: 2015-04-28
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In July 2011, Vineet Soni, head of Performance and Rewards at Tata Motors Limited (TML), was
reviewing the reports before him and deliberating their implications for TML. The company had just
embarked on a major initiative to identify employees’ concerns and the results were not good. Employees
across all levels, including senior leadership, were unclear about their compensation. This led to
confusion, especially when they compared themselves with employees performing similar roles in other
locations or outside the organization. The employees were not the only ones who were puzzled; even the
recruitment team at TML had no clear basis for determining and comparing the salaries of new recruits.
Year after year, engagement surveys corroborated the same findings: employees were not clear about how
their compensation was determined and how it worked. Furthermore, the income tax laws had changed
making it possible to have a simpler compensation structure.
No
It was obvious that something needed to be done. Should it be a major restructuring of the compensation
or could the matter be solved by simply educating the employees? Soni wondered how much the company
could alter its compensation structure. Should it remove some of the components of salary and make it a
simpler structure? If so, which components could be dropped and which should be retained?
HISTORY OF TATA MOTORS LIMITED
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TML, a flagship company of the Tata Group, was India’s largest automobile company with consolidated
revenues of more than USD33 billion.1 It was the leader in commercial vehicles in India, with a strong
presence in passenger vehicles. The company’s manufacturing base was spread across six plants in
Jamshedpur, Pune, Lucknow, Pantnagar, Sanand and Dharwad. Its dealership, sales, services and spare
parts network comprised over 3,500 touch points. Between 2000 and 2010, TML, the first engineering
company from India to be listed on the New York Stock Exchange (September 2004), had emerged as an
international automobile company. Through subsidiaries and associate companies, it had operations in the
United Kingdom, South Korea, Thailand, Spain and South Africa. Among them was Jaguar Land Rover,
which comprised two iconic British brands acquired in 2008.
1
All currencies in USD unless otherwise stated. USD1 = INR63.24 as per http://xrates.com/calculator/?from=USD&to=INR&amount=1.00, accessed January 3, 2015.
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In 2011, the preeminent position held by Tata Motors in commercial vehicles (over 60 per cent market
share) and the strong position in passenger vehicles (14 per cent market share) was increasingly under
threat, with a host of global automotive giants launching their vehicles in India (see Exhibits 1 and 2). The
strong competition indicated challenging times for any organization aspiring to sustain a dominant market
share. According to one senior manager, “For Tata Motors to sustain and improve its market position, it
needs to establish a culture that encourages ownership, innovation, raising the bar and speedy response.
The mindset of employees needs to be geared towards this ethos.”
In 2011, in line with the vision, “To make Tata Motors a world-class destination for best-in-class talent to
sustain its business success,” a new human resources (HR) strategy was introduced. This strategy rested
on three pillars:
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1. Talent management and leadership development to guide growth;
2. Organizational renewal to dramatically enhance employee engagement; and
3. Organizational enablers to simplify the HR experience for internal customers while making it scalable.
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Employee engagement surveys had been conducted since 2005, which enabled TML to keep in touch with
the organizational pulse. According to the results of these surveys, one of the foundations of building an
engaged workforce was having the right performance enablers and measurement system. The surveys
indicated that there was a significant dip over the years in employee engagement scores pertaining to
performance management and reward systems. As the organization had articulated in its five-year human
capital strategy (in which performance and rewards was noted as a key organizational enabler), it was
important that the organization inculcate meritocracy and high-performance culture. In November 2011,
an HR strategy session was conducted with all TML senior HR leaders and performance and rewards
emerged as a critical focus area to drive employee engagement.
REWARDS AT TML
TML had a hierarchical structure with 17 pay levels represented by letters “A” (lowest/junior) to “Q”
(highest/senior), with employees spending between approximately three to five years in each grade (see
Exhibit 3).
No
Like many Indian companies, TML had an elaborate pay mix with about 16 components determining
different allowances, some of which were linked to the basic salary. On the one hand, this gave recruiters
a great deal of flexibility, since by tweaking the basic salary and some other allowances they could
effectively engineer a drastically different overall compensation. However, on the other hand, it led to
many disparities in compensation amongst peers and there was no clarity on how much a person actually
earned (see in Exhibit 4).
Do
Traditionally, TML had been rather conservative in its compensation design, pegging salaries at between
the 40th and 50 percentile for fixed pay while being slightly aggressive on variable pay for senior
positions (see Exhibit 5). While this pay structure, mix, and positioning had served the company well in
the past, it was clearly not coordinated with the needs of the future. Repeatedly, Soni had encountered
TML employees who were unhappy with elements of their compensation.
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Problems at Pantnagar
The TML Pantnagar plant started operations with a team of employees who were handpicked from those
working in the commercial vehicles plant in Pune. Pantnagar was located in the foothills of Uttarakhand
and was destined to be an industrial area. Traveling to Pantnagar for a focus group discussion with
employees and senior management, Soni was sure the effort and time involved would be worth it. He felt
that Pantnagar was a new plant with a young employee base and hence, it may have a more positive
energy and culture than the plants he had visited earlier.
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However, Soni was disappointed to find that Pantnagar was no different from the other plants. The focus
group discussion had employees talking about everything with reference to rewards, including the city’s
social infrastructure. On the one hand, for senior leadership, attraction to a remote location came up as a
key engagement driver (i.e., it was easier to secure admission in a good school in a remote location). Yet
on the other hand, most of the graduate engineer trainees (GETs) were looking for opportunities to move
back to Pune, Chennai or the National Capital Region as soon as possible.
Another peculiar issue at Pantnagar was disparity in a component of the salary. To incentivize the team at
Pune to relocate to Pantnagar, the employees’ total pay was protected by balancing the house rent
allowance (HRA) difference with a newly added component — personal compensatory allowance (PCA).
When the Pantnagar plant expanded, many external hires were brought onboard. The newly selected
employees found an inequity when PCA was missing from their compensation sheets. In addition, those
with PCA retained the PCA component in their compensation structure if transferred elsewhere, thereby
creating inequity with respect to the existing staff in their new location.
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House Rent Allowance Hassles
HRA constituted another major area of confusion. As per TML’s system, employees were paid HRA
based on the class of the city in which they worked. This created numerous barriers to internal transfers
across different locations within the company.
No
For example, Surinder was a star sales manager in his hometown, Chandigarh (a Class 2 city). Based on
his stellar performance, Surinder was chosen to work on a challenging assignment in a new dealership at
Ferozpur (a Class 4 city). When Surinder was offered the new assignment, he refused outright on the
grounds that it would adversely affect his finances. Not only would he have to incur additional expenses
in rent and schooling for his children, but moving from a Class 2 city to a Class 4 city would substantially
reduce the HRA component in his monthly income. This was not an isolated case; Soni had received
numerous emails from employees and their managers about how the company’s existing HRA policy
created a barrier to movement (see Exhibit 6).
Do
Attracting and Retaining Young Talent
Being a GET at TML had always been an attractive option for young engineers. GETs had three annual
projects (four months each) and no formal performance rating at the end of year, as well as opportunities
to travel throughout the country. However, TML had been facing a challenge in the last few years with
respect to attracting new talent. The company had a provident fund and superannuation scheme (see
Exhibits 7 and 8), which added to costs but did not really translate into more cash for young engineers.
Since many GETs thought “short term” (many of them were just waiting to take the entrance exam for a
post-graduate qualification in management), this policy was detrimental to TML.
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Soni had received a call from the HR head of the Jamshedpur plant, who was convinced that GETs in
Jamshedpur were not being treated fairly as a number of them had told him that they were being paid $79
per month less than their peers hired from the same campus and placed in Mumbai. Considering that
Jamshedpur was a less attractive location than Mumbai, it was difficult for either the HR head or Soni to
justify the difference.
Survey Findings
An internal survey done on compensation practices in TML revealed the severe need for change (see
Exhibit 9). Some of the highlights of the report were as follows:




47 per cent of the employees surveyed said the existing compensation structure was complicated and
not clear to them.
71 per cent said they would prefer a more flexible compensation structure in which they could decide
their basic pay and benefits ratio within the total salary.
59 per cent said the HRA offered by TML did not cover their actual housing expenses.
77 per cent said the car policy needed to be more liberal and offer more choices within the Tata brand.
62 per cent said they would prefer to get their superannuation contribution as cash in hand every month.
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
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In addition, employees had complained about the lack of transparency in pay fitment. This was largely
due to the 16 components (different allowances) that were linked to basic salary. Recruiters often
manipulated these components to inflate the salary for a particular position and make it seem more
attractive for applicants. Because of such opportunistic behaviour, there were many differences in
employees’ salaries — even if they had similar qualifications, work experience and positions at TML.
THE DILEMMAS
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No
All of the feedback Soni had reviewed suggested that TML’s compensation structure needed to be
reexamined. He looked at the worksheet containing all the employees’ salaries (see Ivey Publishing
product #7B15C017) and wondered to what extent it needed to be changed. What components of the
salary could be dropped to make it simpler? Should TML do away with location-specific components and
have a common pan-India structure? Should it continue with its policy of superannuation? How could the
salary structure be made understandable to ensure proper matching of candidate profiles during
interviews? Even if Soni did answer these questions, how should he go about the task of communicating
the revised structure to the rest of the company?
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EXHIBIT 1: TML PROFIT AND LOSS ACCOUNT (IN MILLIONS USD)
Financial Year
2010/2011
Financial Year
2009/2010
8,245
6,067
648
7,598
29
7,627
438
5,629
293
5,921
6,480
4,678
363
17
215
181
23
7,279
290
23
163
174
146
5,475
3. Profit Before Tax
347
447
4. Tax Expense
-61
93
286
354
1. Income
Sale of products and other income
from operations
Less: Excise Duty
Dividend and other income
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2. Expenditure
Raw materials/components,
manufacturing and other expenses
Employee Cost
Product development expenditure
Depreciation/Amortization
Interest and discounting charges
Exceptional items - Loss/(Gain)
Total Expenditure
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5 Profit After Tax
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Source: Annual Report 2010/11, www.tatamotors.com/investors/financials/annual-reports-20F.php, accessed January 17, 2015.
EXHIBIT 2: BALANCE SHEET (IN MILLIONS USD)
No
What the company owned
1. Net Fixed Assets
2. Goodwill
3. Investments
4. Foreign Currency Monetary Item
Transaction Difference Amount (Net)
5. Net Current Assets
6. Total Assets (Net)
As on March 31, 2011
As on March 31,2010
2,764
2,599
3,578
3,533
-342
5,998
-928
5,230
2,514
3,165
320
6,000
2,624
2,367
238
5,230
Do
What the company owed
1. Loans
2. Net Worth
3. Deferred Tax Liability (Net)
4. Total Funds Employed
Source: Annual Report 2010/11, www.tatamotors.com/investors/financials/annual-reports-20F.php, accessed January 17, 2015.
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Indicative Designations
Grade Descriptors
Has primary responsibility for growth and profitability of the
company and is directly accountable to the board of
directors for all company activities.
M
(21-25 years)
Chief executive officer (CEO) of
large business (>$1,581 million)
CEO of medium to small
business (<$1,581 million), head
of large business Unit (<$1,265
million)
Head of medium/small business
unit (<$ 1,265 million), head of
large function (e.g., international
business unit head), vicepresident sales and marketing,
head of HR of a division, head of
sales
Heads of functions, heads of
plants
L
(18-21 years)
Head of region, department,
zonal sales, head of production
K
(15-18 years)
Small department head assembly (one production line),
head production (one product)
large state heads (sales)
I/J
(12-15 years)
Senior manager, small state
heads (sales), senior manager,
deputy general manager, human
resources, sub - function heads
Manager, area sales manager
(handling a large city/multiple
small cities), manager - legal,
manager - quality
Deputy
manager,
territory
manager (managing districts or
one small city), deputy manager accounts, deputy manager - legal
Assistant Manager
N/O
(25-30 years)
G/H
(9-12 years)
No
F
(6-9 years)
E
(3-6 years)
Do
D
(1-3 years)
A/B/C
(0-4 years)
Highest level of management with overall responsibility for
one/more than one major line(s) of business (>$12.65
million). Has significant input on the organization’s policies
and long-range objectives.
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P
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Grade (Years
of
Experience)
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EXHIBIT 3: LEVEL AND GRADE MAPPING AT TATA MOTORS
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Graduate engineer trainees,
confirmation/senior officer/senior
executives
Officer/executives,
executive
(accounts), payroll office
Includes heads of smaller to medium functions and very
large departments/manufacturing units. Could also be
members of the management committee. Works alongside
CEO to develop organization strategy and goals and
implement them for the respective function.
Includes heads of large departments/manufacturing units.
Overall accountability for the performance of the respective
department/unit.
Includes
heads
of
small
to
medium
departments/manufacturing
units.
Responsible
for
cascading organizational strategies and goals down to their
respective departments. Overall accountability for the
performance of the respective department/unit.
Experienced individual contributors able to adapt broader
policies and programs to meet the organization’s business
needs. May lead a large team or a mid-size department
within a broader function.
Includes small section heads under plant and divisional
heads (typically middle management at TML).
Individual contributors or supervisors responsible for the
delivery of varied technical and professional activities. May
supervise a team of entry-level assistant managers.
Individual contributors/entry-level managers requiring basic
understanding and application of theoretical principles
within field of specialization. While the work follows defined
processes and precedents have been set, incumbents are
expected to plan.
A team member, contributing predominantly to operational
areas and facilitating work. Learning member, working
under close supervision. Entry-level for engineers.
A team member, contributing predominantly to operational
areas and facilitating work. Learning member, working
under close supervision.
Source: Company information.
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Pay Element
Basic
Child education allowance
3
Child hostel allowance
4
Executive allowance
5
Housing allowance
6
Merit allowance
7
Provident Fund (PF)
8
9
10
Gratuity
Superannuation
Leave travel assistance (LTA)
11
Officer’s allowance
12
Personal
compensatory
allowance (PCA)
13
Special payment
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No
14
Transport allowance
15
Conveyance
Explanation and Basis for Calculation
As per Income Tax Act, tuition fees of children can be
tax exempt up to $1.58 per month per child, up to a
maximum of two children.
Gives a tax benefit of up to $ 4.75 per month per child up
to a maximum of two children.
Grade-wise entitlement given to executives. Taxable
component.
Given as a % of “basic,” and linked to city class. The taxfree portion of HRA is the least of three factors: (i)
excess of house rent actually paid more than 10% of
basic salary, (ii) actual HRA given by company, and (iii)
a percentage of basic (50% in four metros & 40%
elsewhere).
The increments given based on performance rating are
given as a part of merit allowance. This is a taxable
component.
12% of basic is contributed by the employer towards the
Provident Fund and the same amount is contributed by
the employee.
4.81% of basic
15% of basic
Grade-wise entitlement. A tax saving tool wherein an
employee can claim LTA exemption for self and family,
once in two years, for travel anywhere in India.
Grade-wise entitlement given to officers. Taxable
component.
Individualized component given to employees when they
relocate to another location, such as green-field projects.
This is done to protect their salary on movement and
hence incentivise employees to move to a less attractive
location.
Individualized component given to employees. Taxable
component.
Location-wise entitlement granted to employees to aid
with expenses incurred in commuting to work. Tax
exempt up to a limit of $25.30 per month.
Reimbursement for car expenses, including fuel
reimbursement and driver’s salary, based on cubic
capacity of the car engine. Tax exempt, subject to
submission of bills.
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Sr. No.
1
2
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EXHIBIT 4: ELEMENTS OF PAY MIX
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Source: Company information.
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No. of
Comparators
Total Fixed Pay (TFP) for Market
P10
P25
Median
Mean
96.17
95.29
P66
P75
P90
TFP for Tata
Motors
Median %ile
Position
83.73
Q
3
P
12
45.29
48.63
56.60
61.62
64.76
71.86
83.81
58.93
54%
N/O
14
31.99
35.88
42.42
44.01
46.91
51.21
56.25
45.31
59%
M
13
22.44
26.08
31.33
31.06
34.83
35.58
38.19
36.09
81%
L
14
18.17
18.92
24.86
24.29
26.95
27.57
30.92
27.34
73%
K
11
17.03
18.25
20.91
20.99
21.51
23.22
24.72
23.55
77%
I/J
15
10.85
G/H
14
8.05
F
15
6.50
E
14
4.65
D
14
3.48
A/B/C
14
2.51
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EXHIBIT 5: BENCHMARK SALARIES OF COMPARABLE COMPANIES
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12.76
15.70
15.67
17.48
18.30
21.18
15.69
50%
9.41
12.07
12.07
13.19
14.14
15.96
12.46
54%
7.70
9.62
9.93
11.09
12.02
14.22
9.36
46%
5.47
6.67
7.15
7.51
8.40
10.28
6.71
50%
4.52
5.47
5.65
6.33
6.83
7.91
5.17
43%
3.34
4.62
4.57
5.20
5.61
6.96
4.49
48%
Note: Figures in USD thousands per annum.
Source: Aon Hewitt Society of Indian Automobile Manufacturers Compensation Benchmarking Report FY 2011/12.
EXHIBIT 6: EMAILS FROM EMPLOYEES AND MANAGERS
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Email from Area Manager
As you know we are expanding our customer base, thus dealerships are coming up in semi-urban or rural areas. I am
enclosing the case of a Territory Sales Manager, he has a lot of potential and the organization needs him at places
where there are challenging assignments. However, the HRA policy of city classes is proving to be a hindrance. Are
not policies formed to support business needs? Request you to look into this. I am sure the sentiment is shared in
other regions too.
No
Regards
Suraj – Area Manager Punjab & Chandigarh
Email from a Recently Transferred Employee
Dear Sir,
This is with reference to my new salary structure and Total Fix Pay (TFP).
I have been transferred from Tata Motors Ahmadabad plant to TML Jamshedpur on July 2, 2011.
Do
Before my transfer to Jamshedpur, My housing allowance was 35% of basic salary (and was part of the package) but
after transfer at Jamshedpur housing allowance reduced to 30% of basic salary.
As per company policy, total package will not be reduced on transfer to any city. I had been transferred earlier also
from Kolkata to Pune, in 2008/09, where I [was] compensated for my reduced HRA by a PCA of $20.93.
Therefore, I request you to please look into the matter and revise my monthly total fixed pay.
Sincerely,
Nipun
Source: Company information.
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EXHIBIT 7: PROVIDENT FUND SCHEME
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Tata Motors Limited administers the provisions of the Employees Provident Funds Scheme 1952 through its exempt
trust, namely Tata Motors Limited Provident Fund. Employer and employee share is paid to the fund, which makes
investments as per investment pattern norms as approved by the Ministry of Labour.
Employee Contribution
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The employee contribution is 12% of the pay. “Pay” includes basic wages with dearness allowance, retaining
allowance, and cash value of food concession. Basic wages means all emoluments which are earned by an
employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the
contract of employment and which are paid or payable in cash to him, but does not include the following: (i) the cash
value of any food concession; (ii) any dearness allowance (that is to say, all cash payments by whatever name called
paid to an employee on account of a rise in the cost of living); (iii) house-rent allowance, (iv) over-time allowance, (v)
bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work
done in such employment; and (vi) any presents made by the employer.
Members may make an additional voluntary contribution through the payroll. The maximum amount of voluntary
contribution cannot exceed 88% of the basic salary.
Employer Contribution
The employer contribution is equal to 12% of pay and is bifurcated as under:


Pension Fund (Employees’ Pension Scheme (EPS)): 8.33% of pensionable salary. Pensionable salary is
actual basic pay or $102.79, whichever is less.
Provident Fund: 12% of pay minus EPS contribution as per above.
Source: Company information.
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EXHIBIT 8: SUPERANNUATION SCHEME
The Superannuation Scheme offered by Tata Motors for its employees is an income tax-approved defined
contributory, social security scheme, which provides for pension benefits post retirement. It is offered by the company
on its own initiative and is not mandatory or obligatory under any Labour Law provisions. The Scheme is managed by
Tata Motors Limited Superannuation Trust, whose trustees are all senior executives of the company. Contribution to
the scheme is at 15% of the basic salary in respect of each employee and is paid annually to the trust fund, which
invests the same as per the investment norms approved under the Income Tax Act 1961.
No
Based on the earnings of the trust fund from the investments, every year, the trustees declare the interest to be
credited to each member’s account. The interest rate declared by the trust in the last three years is between 9.25%
and 9.75%, which is credited tax-free. All permanent employees of Tata Motors drawing a basic salary of $23.72 per
month or more are eligible and employees have to apply for membership. However, once having opted for
membership, the employee is not allowed to withdraw from membership of the Scheme while still in service.
The objective of the Scheme is to secure pension benefits. The amount accumulated in respect of each employee will
be used only for purpose of purchasing pension annuities and cannot be repaid to the employee directly under any
circumstances. No loan or advance is granted in respect of the amount accumulated under the Scheme.
Do
At the time of superannuation/retirement, one-third of the amount accumulated in the member’s account can be
commuted (availed in cash without tax). The remaining two-thirds is used to buy pension annuities from Life
Insurance Corporation (LIC) for pension payment, based on the choice of the option to be exercised by the employee.
In case of any other separation, if the employee’s age is more than 50 years, one-third amount (commutation –
taxable) is paid immediately and the balance amount is used to purchase annuity from LIC. If the employee’s age is
less than 50 at time of separation, the total amount of accumulation is used for purchasing an annuity. In case of
death, the nominee will get pension only on full accumulation — i.e., one-third commutation is not allowed. In addition
to the above there is a life cover of up to a maximum of $3,163 in respect of all members. This amount is paid to the
superannuation nominee in case of death while in service.
Source: Company information.
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EXHIBIT 9: EMPLOYEE COMMENTS FROM PAY SATISFACTION SURVEY
“The band is very wide within a grade for compensation which brings a lot of dissent. A junior officer can
have an offer of up to $14,234 and another more senior officer could have offer of less than $7,908.”
“Pay packages offered to outside recruits are higher than those who remain with the company - loyalty
pay for performers who are with the company for a certain period (say seven years) could be considered
to match the gap.”
“It is said that one should leave TML and then re-join after a year after negotiating a higher salary.”
“Compared to the quality of the accommodation given, HRA in Jamshedpur is very high. Rent is also
much lower. Other companies in the vicinity give part of the HRA back.”
op
yo
“Regarding the refreshment coupon, the amount varies from $11 to $12.65 depending upon the location.
The idea is also very historic; either the amount should be increased or the amount needs to be merged
in the salary.”
“Pay packages of employees in B- and C-grade towns should be higher than those in metro and A-grade
towns because they are losing on part of their growth and cannot keep pace with change. They lack the
use of infrastructure and development of bigger towns. Even their children lose out on education
opportunities in smaller towns. Also in many smaller towns, the cost of living is higher than in bigger
towns or metros.”
“Pantnagar: City compensatory allowance needs to be revised. The cost of living is almost as high as any
metro due to proximity to Delhi/ NCR.”
tC
“The car policy should be amended suitably as even our sales managers in dealerships earning lesser
salaries are given car perks while at D grade, they are not given. We work in an auto industry and yet do
not have car perks at lower levels. We can bring in car perks with employee contribution at D grade.”
“To retain middle managers, we could extend the company car policy from grades G to I. Indirectly this
would put more cars on the roads through employees and advertise Tata Cars.”
Do
No
Source: Report of Pay Satisfaction Survey done by TML.
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