Access over 20 million homework & study documents

An examination over effects of capital structure on risk indices in

Content type
User Generated
Type
Study Guide
Rating
Showing Page:
1/50
- 1 -
SAIL'S VOLUNTARY RETIREMENT SCHEME
Case Code-HROB002
Published-2003
INTRODUCTION
At a meeting of the board of directors in June 1999, the CEOs of Steel Authority of India's (SAIL)
four plants - V. Gujral (Bhilai), S. B. Singh (Durgapur), B.K. Singh (Bokaro), and A.K. Singh
(Rourkela) made their usual presentations on their performance projections. One after the other,
they got up to describe how these units were going to post huge losses, once again, in the first
quarter
[1]
of 1999-2000. After incurring a huge loss of Rs 15.74 billion in the financial year 1998-99
(the first in the last 12 years), the morale in the company was extremely low. The joke at SAIL's
headquarters in Delhi was that the company's fortunes would change only if a VRS was offered to
its CEOs - not just the workers.
BACKGROUND NOTE
SAIL was the world's 10th largest and India's largest steel manufacturer with a 33% share in
the domestic market. In the financial year 1999-2000, the company generated revenues of
Rs. 162.5 billion and incurred a net loss of Rs 17.2 billion. Yet, as on February 23, 2001, SAIL
had a market valuation of just Rs. 340.8 billion, a meager amount considering the fact that
the company owned four integrated and two special steel plants.
SAIL was formed in 1973 as a holding company of the government owned steel and
associated input companies. In 1978, the subsidiary companies including Durgapur Mishra
Ispat Ltd, Bokaro Steels Ltd, Hindustan Steel Works Ltd, Salem Steel Ltd., SAIL International
Ltd were all dissolved and merged with SAIL. In 1979, the Government transferred to it the
ownership of Indian Iron and Steel Company Ltd. (IISCO) which became a wholly owned
subsidiary of SAIL.
SAIL operated four integrated steel plants, located at Durgapur (WB), Bhilai (MP), Rourkela (Orissa)
and Bokaro (Bihar). The company also operated two alloy/special steel plants located at Durgapur
(WB) and Salem (Tamil Nadu). The Durgapur and Bhilai plants were pre-dominantly1ong products
[2]
plants, whereas the Rourkela and Bokaro plants had facilities for manufacturing flat products
[3]
.
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 should consisted 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 Fund
[4]
(SDF) loans worth Rs 50.73
billion and Rs 3.8 billion lent to IISCO. The government also agreed to provide guarantee for raising
loans of Rs 15 billion 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 further raising of Rs 15 billion, for repaying past loans.
Business restructuring proposals included divestment of the following non-core assets:

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/50
- 2 -
Power plants at Rourkela, Durgapur & Bokaro, oxygen plant-2 of the Bhilai steel plant and
the fertilizer plant at Rourkela.
Salem Steel Plant (SSP), Salem.
Alloy Steel Plant (ASP), Durgapur.
Visvesvaraya Iron and Steel Plant (VISL), Bhadravati.
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
the largest percentage, as 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 secretariats, 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." With a manpower of around 60,000 in these offices and non-
plant departments like schools, township activities etc, SAIL could well bring down to less
than 10,000.
Reduction of white-collar manpower required a change in the systems of office work and
record keeping, and a very high degree of computerization. Officers across the organization
employed dozens of stenographers and assistants. Signing on note sheets was a status
symbol for SAIL officers.
Another official commented: "Systems have to be result oriented, rather than person oriented and
responsibilities must match rewards and recognition. There is a need to change the mindset of the
management, before specific plans can be drawn out for reduction of office staff."
From the beginning, SAIL had to contend with political intervention and pressure. Many officials held
that SAIL had to overcome these objectives: “Many employees do not have sufficient orders or work
on hand to justify their continuance, and yet political pressures keep them going. It is time that the
top management takes a tough stand on such matters. One does not have to call in McKinsey to
decide that many SAIL stockyards and branch offices are redundant.”
THE VOLUNTARY RETIREMENT SCHEME
As a part of the restructuring plan, McKinsey had advised Pande that SAIL needed to cut the
160,000-strong labor force to 100,000 by the end of 2003, through a voluntary retirement scheme.
Pande was banking on natural attrition to reduce the number by 45,000 within two years, but GOI's
decision to increase the retirement age to 60 further delayed the reduction. Subsequently, SAIL had
requested GOI to bail it out with a one-time assistance of Rs 15 billion and another subsidized loan
of the same size for a VRS, to achieve the McKinsey targets.
In a bid to 'rationalize' its huge workforce, SAIL launched a VRS in mid 1998, for employees who
had put in a minimum service of 20 years or were 50 years in age or above. The scheme provided

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/50

Sign up to view the full document!

lock_open Sign Up
End of Preview - Want to read all 50 pages?
Access Now
Unformatted Attachment Preview
SAIL'S VOLUNTARY RETIREMENT SCHEME Case Code-HROB002 Published-2003 INTRODUCTION At a meeting of the board of directors in June 1999, the CEOs of Steel Authority of India's (SAIL) four plants - V. Gujral (Bhilai), S. B. Singh (Durgapur), B.K. Singh (Bokaro), and A.K. Singh (Rourkela) made their usual presentations on their performance projections. One after the other, they got up to describe how these units were going to post huge losses, once again, in the first quarter[1] of 1999-2000. After incurring a huge loss of Rs 15.74 billion in the financial year 1998-99 (the first in the last 12 years), the morale in the company was extremely low. The joke at SAIL's headquarters in Delhi was that the company's fortunes would change only if a VRS was offered to its CEOs - not just the workers. BACKGROUND NOTE SAIL was the world's 10th largest and India's largest steel manufacturer with a 33% share in the domestic market. In the financial year 1999-2000, the company generated revenues of Rs. 162.5 billion and incurred a net loss of Rs 17.2 billion. Yet, as on February 23, 2001, SAIL had a market valuation of just Rs. 340.8 billion, a meager amount considering the fact that the company owned four integrated and two special steel plants. SAIL was formed in 1973 as a holding company of the government owned steel and associated input companies. In 1978, the subsidiary companies including Durgapur Mishra Ispat Ltd, Bokaro Steels Ltd, Hindustan Steel Works Ltd, Salem Steel Ltd., SAIL ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Super useful! Studypool never disappoints.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4