Are Bonds necessary deterrents? Efficiency vs Effectiveness ...

The question I had opened in the last post regarding Bonds is "Are bonds a necessary deterrent ?'.

Well, as Prof. Ganesh rightly points out "it is not about the efficiency but the effectiveness".

So, let us see if bonds are effective.

1. As we have already seen and discussed over a thousand times, almost all the logical framewrok like Covenant per se in invalid approach, Presumption against enforcement approach, Reasonable Restraint argument, Mutuality of Obligation, Acting in Bad Faith Approach, etc show that it is not easy to get away with bonding forcefully an employee and slamming a court case in case of breach!
2. And, moreover this never helps in your productivity as an employee who has an offer at hand lucrative enough will somehow leave the organisation or current employer.
3. Moreover, even if the cost is more than the benefits of a switch, the employer who is forcibly staying for a longer period of time or till the bond period is over, would not be able to give even 30% effective value to the organisation.

So, typically, the bonds may be efficient as a deterrent and in achieving Break Even for the incurred training costs and in case like in most IT companies where the job profile for almost all engineers is similar and there is actually a need of workforce to do the more regular monotonous and technical jobs, Bonds are never effective.

And effectiveness is what matters. Carrying forward my argument and support of Karan's well put premise that Bonds are necessary where IP rights and costs are huge, training or specialisation delivered in very unique and of breakthrough market capability, etc bonds are necessary - I would say that bonds can be made to confirm with all those frameworks.

The managers should concentrate on framing bonds to protect the knowledge assets they own rather than on focussing on it being foolproof to legal terms.

Managers should foster linking jobs to qualifications and attitudes in innovative ways like Google and Pagalguy, than making it binding upon employees to stay forced. In IT companies, cos could have bonds for say, a particular project period or give employees the choice to pay for their training onsite in EMIs from their salary and work without serving any bond period. Cooperativeness, compassion, participation can all bring about ownership feeling and loyalty towards an organisation.

This is the only constructive win win situation by me. After all, who thought emerging from the monopolist Microsoft era, there would be this revolution of high tech computer engineers starting some free software development and distribution movement known as Open Source !

Just an analogy ....

Bonding by will or by force?

In my industry there was a severe imbalance among supply and demand of labour. The industry was growing in a much faster pace than the labour force it can attract towards it. This gave the employees certain leverage in dictating terms. During my tenure i was constantly being offered jobs from various foreign companies with higher pay grade and better ships, which leads to better working environment.
Most of the companies, exception of a few, hired the floating staff on a contract basis. It was a certain period contract which upon completion of the stipulated time invalid. So bond was not implemented on them. Only those firms which gave a permanent employee status imposed a bond.
When I joined my firm, i was asked to sign a bond of Rs 25,000 for a period of four of service. This was approximately one-third of monthly salary. When i inquired about the reason of such an amount being imposed, the answer was “What is the point?”. From the past experience the firm has seen that imposing a higher amount for a shorter period would lead to lower attrition rate during that period only and after completion the employees usually left because they felt the firm had hard restrictions on them (worked as negative psychological barrier). A higher period and amount lead to lesser amount of entries. A lower amount and shorter period did not serve any purpose. But a lower amount coupled with higher period did not have any psychological effect and in fact gave the firm an advantage over its competitors.
I, in general, feel that bond is yet another form of restriction put upon an already heavily burdened employee. The firms should really focus upon how make work more enjoyable and competitive at the same time so that the employee enjoys his/her work and stays with his own consent and rather not because of any restrictions. If any employee has really made up his/her mind to leave then staying will not help the firm in any way. The employee will not perform in his/her full capacity and rather becomes a liability to the company. The firm then should be happy to let go of those and make way for new entrants, who will really serve them properly.

Bonds are meant to be broken

I was just wondering the dilemma many youngsters have before signing a bond for a lucrative job in a reputed company. Signing the bond when one knows that he or she only wants some experience in the company before doing a post graduate course becomes another tough call. Also many employees who are not satisfied with their current employer in the bond period itself (which is generally 2 years for most of the companies) and want to move on are in a fix because of the risk of breaking bond. As everyone knows that if you break the bond company will not give you the experience certificate required to be shown in other company.

I got a solution to this particular risk of breaking bond from one of the HR person of a company. The solution is to give a copy of the resignation email approved by your present company to the joining company as a proof of experience. Also give them in writing on an affidavit that you will be responsible for any further problem created by your previous company. Say if the previous company files a court case on you (which is not possible as in India we don’t have any concept of “bonded labor”) in that case all the responsibility will be taken by you. This is a rather bold solution to the problem given by the bond creators themselves (HR persons). This was in general for the bonds which fresher’s have to sign before joining.

For breaking other bonds like the H1 visa bond (which the company forces to sign once the visa is prepared by them), the future companies generally buyout the visa on which your previous company had invested money. So it is ok to break the bonds if one feels that will benefit in their future growth.

Employment Bonds.

As per the Indian Contract Act 1872, a "contract" is an agreement that is enforceable by law.Agreements not enforceable by law are not contracts. An "agreement" means 'a promise or a set of promises' having consideration for each other. An agreement is an accepted proposal. Hence, an agreement consists of an 'offer' and its 'acceptance'.

A bond is a contract between an employer and employee. Many of the IT companies like Wipro, Infosys , Satyam have bonds. From the employer's point of view it is important as the employer wants the employee to stay with it for a minimum period so that the company can recover the costs it has incurred in training and enhancing the skills of the resource. Or it may want the services of the employee for some time after the employee becomes ready to be productive for the company. Some IT companies will even charge the employee for the use of resources like PC etc. during the training period if he/she breaks the bond.

From the employee's point of view however it can be an impediment for career growth as it may hinder job switch etc. Also if someone wants to leave the company and go for higher studies before the stipulated contract period then he/ she has to pay the agreed bond amount.

But these legalities are usually clear to the employees from the beginning and accordingly he can take an informed decision. Usually if an employee goes absconding without resigning he can escape paying the bond amount, but he won't get any PF money, experience letter or a relieve letter. This might as well hamper his future job prospects.

Also many times the company has arrangements with a bank and makes the employees take loans equal to the bond amount and pay it to the company. If the person goes absconding then its the bank's loss. But there can be serious legal implications for the person if he is caught.

Nowadays, many people break bonds and move on to better opportunities. It also happens that if a person switches a job and he is a very talented resource, then his new employer will pay for the bond amount with the previous employer. Also, many companies have bond where in they don't demand any compensation from the employee but they won't simply give an experience letter. This is to deter him/her from leaving the company before he/she has served there for a certain period.

Also many times one can negotiate with the HR team with the help of one's manager to bring down the severance amount depending on the period he has served etc. So how actually companies respond to such employees also varies from company to company.

If a bond is a valid contract, company may go to court.I think organisations are very powerful entities and it is difficult for an individual to take a stance against them. So either the employees abide by the rules of the bond or they be ready to face the consequences. But none the less, companies should not use bonds as a weapon against their employees.

Any act on the part of company e.g. retaining the original educational certificates/ creating any kind of impediments for the concerned employee to join a job(i.e. to earn) will adversely mar the cause of company. Also , the amount of compensation a company can claim must be commensurated with the loss caused , and not more. Any condition which violates the fundamental rights as defined in constitution / are not tenable in the eyes of law, will also mar the validity of bond in question.

Employment Bond: A control mechanism?

An employment bond is yet another type of agreement to restrict the movement of trainees to other organisations offering better remuneration and benefits. To safeguard its own interest and reap the benefits of the investment it has made on each of the employees, starting from recruitment cost to training and grooming them, the company makes its trainees sign an agreement with various employment clauses like compulsory stay with the company for certain period or pay a penalty of certain amount. It also, to certain extent, prevents the solicitation of employees by other competitors.
In the context of Indian companies, especially IT companies, these bonds have become norm of the day. Almost all the companies make their trainees sign this bond within a day or two of joining the organisation. Obviously, at that point of time the bargaining power of the employees is very limited, and without any questions, they have to choose between the option of signing the bond or losing the job. Such a bond is out and out for the benefits of the employer.
In my views, it is not unfair on the part of a company to put some restriction on its employees after investing a considerable amount on grooming the employee and make him/her suitable for the work. If no such bond exists, the employee can leave the organisation and join its competitor for a higher pay. In such situation, not only the company will have to bear the cost of training the employee without any ROI, also it will need to train new workforce to replace the employee.
But most of the Indian IT companies, though they have an employment bond in place, do not strictly follow it. Companies like Infosys, which restrict its employees to stay in the company for 1 year or else pay Rs 1 lakh, hardly ever follow up any defaulters. It might be because as per the Indian Contract Act contracts entered between two parties if is one sided then such contract would be null and void. Most of the Bonds are one sided.
Bonds might be one way of getting the ROI on an employee, but it is certainly not the best way. Improving the work culture, raising the standard of jobs, providing adequate compensation etc can be other ways of retaining employees after training. This will not create any negative feeling towards the organisation, rather will boost the employee morale, and improve their performance, which in turn will benefit the organisation.

Bonds are injurious to employees

The concept of bonds help the employer in reducing attrition , in recovering the money invested on the employee. In this regard, i would like to narrate my own experience. The attrition in software companies is very high and is growing rapidly. This may be due to bad working conditions or high ambitions of the employees. Whatever may be the cause , to address this issue software companies take refuge in various bonds while recruiting employees. TCS has this policy that any fresher joining the TCS has to sign bonds which restrict him from leaving the company for two years and if he leaves before that he will have to pay a sum of Rs 50000/- and has to give one month notice . Straight out of my engineering college , I joined TCS and signed this bond. As obvious , i had no clue what is the importance of it and how much it can cost me in future. As all my friends were signing it , i too signed it.
Now, when in TCS i did not like the kind of work I was doing and also for the reason that i had to regularly work for 12-14 hours a day. So, i desperately searched for other options. The one which i chose was to go for higher education. I cleared XAT and was selected for XIMB. But, when i filed my resignation the HR clearly refused it saying that you cannot just simply put down your papers and that you have to serve TCS for the one month notice period , do knowledge transfer to some guy (as i was a key resource in that project ) and pay the amount of 50000 before you can come out of TCS (you will not get any experience certificate ). Now , i would like to state that I got the mail from XIMB admissions office that i was selected for its PGDM program on 17th June and that i will have to join on or before 25th June. So, if i will have to serve the the one month notice period at TCS, i will not be joining XIMB . Still i tried to convince the HR and my project manager , but all in vain . Finally, i told them that if they will not release me from TCS then i will join XIMB without paying the bond amount and that i have my payslips to prove that i worked for TCS for one year. I also told my project manager that i will not do the knowledge transfer because of which they will have to suffer .Then , they started negotiating with me and finally agreed upon 7 days knowledge transfer along with the 50000 after which i will be released from TCS.
So , this way i got released from TCS and finally joined XIMB. But, here as i was going for higher education i was not really worried about my experience certificate and as i was a key resource in the project i was able to negotiate. But ,i have many friends who are getting good offers from other companies but have to serve these notice periods before getting released from TCS .As, the release letter from your previous employer and the experience certificate is a must for the new job , they are not mostly able to join the companies ,as by the time they clear the notice period the post is occupied by someone else. So, the bonds are playing their part for the employers though sometimes employees can outsmart them.

TO BOND OR NOT TO : CONTRACT KILLING TAKES ON A NEW MEANING

First lets not get too carried away with the literal meaning of the words.Contract Killing, to any layman, would probably mean hired mercenaries who kill for money.When both parties have to respect the contract and to violate it means endangering your life.

Company contracts aren't so grave an area that you have to put your life on stake.True.Yet they can hardly be termed as Gentleman's Agreement what with both parties haggling and aggressively pursuing their own interests.What one can be certain though is under any given circumstance at any given time, only and only one party stands to gain. There is zilch to little chance of both parties benefiting from the closure of contract. In such a scenario, the Company tries to gain the upperhand by asking the fresh recruits to sign a bond for 2-3 years generally pledging their loyalty to the company over the period failing which they have to pay a hefty sum. On the other hand the employees want to change ship at the earliest once a better opportunity comes up, paying scant attention to the expenses the company spends on their training.Both parties are tring to gain maximum leverage of the very muddy area that Bond Rules is thus trying to make a killing at the others' expense.and Clearly the atmosphere is built on bedrock of mutual mistrust and apprehensions of the other party's intent.

As has been the general tone of the discussion forum, it clearly points to how discomforting and intimidating the scenario of signing the bond on joining a new company can get for the recruit.Especially for the freshers who only have completed their degree and haven't had a taste of life with job. Most sign the bond because they fear they maynot get a shot at a company that offers no bond stipulations or hold out little longer for company that gives better salary at more acceptable terms.Higher Studies is an option not many can take or are willing to take given the dearth of seats availability for higher studies.Plus it maynot really benefit you in your career unless one has clearly defined vision of what is the specific area he wants to work in.Most fresh graduates behave like the herd, go through one learning experience after another, and only then do they take a decision.

Cut to signing the bonds scenario which virtually paralyses any chance they could have at altering their decisions.They are made hostage to their own decision and they have to abide by it until the bond period ends or else they have to cough up a hefty amount which is essentially a FINE. This is a practise rampant across all IT companies and they justify it as their way of holding off competition and recovering the training expenses they incur on these recruits. This can only be described as a regressive step and as such most employees would be baulking at such "lack of maturity and understanding" shown by the company.The company's HR top brass needs to understand you don't earn loyalty by putting the most stringent of norms and contracts, you only are breeding a lot of wantaway employees and of course ensuring that self-driven initiatives for the company get obsolete.

And given the vulnerability of the fresh graduates that the company os taking advantage of by making them sign the bond and putting a lid on whatsoever career moves they may have planned, they are also ensuring such people would never like to come back to this company in the future.And without goodwill, the only way to poach them is pay them hefty pay packets.

Its all convenient to say charging two lakh for three years bond makes perfect business sense. However it is also giving rise to a potential graveyard for the company when the only way to retain and hire new or experienced employees is to offer them inflated salaries as the sole incentive.On the other hand company with good HR practises and maturity to look beyond Bonds payment model can actually get their target employees paying them reasonable salaries. Sooner or later the companies have to reconcile to the fact that the Standard Procedure is no longer "being interested with the employees affairs only during their stay in the firm", today " its their perception on what the company means to them,whether they are part of it or not" that counts.