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.

Don't just sign a bond - Make 'A Bond'

In various posts I read people taking different stance about the ‘Bond’ that company enters into with its employees. Here I will observe this in light of my experience at Infosys and will try to find out reason of the employment bond from the standpoint of both the parties involved.

During college we had least idea about going-ons inside the corporate world but the major criteria for applying into any company was its brand name, package, training quality and future job opportunity and finally term of bond. Companies like Xansa (now Steria) offered one-two weeks training and had a bond of six months. While Infosys, which was famous for its extensive training program had a clause of one-year bond. Though the bond period was a cause of initial hesitation, Infosys had lot of takers because of employee-friendly image, exquisite campuses and training programs. The other factors overpowered ‘the bond’ clause.

And indeed after joining Infosys I believe that one year bond was justified. We functioned inside the organization as trainees (basically liabilities) for 3-4 months, which company invested in by providing future requirement specific theoretical and hands-on sessions. Now, in absence of bond, an employee just might leave without letting the firm leverage on the investment it made. The investment that I talk about here is both in time and monetary terms.

No Bond:

- Company trains employees on the basis of future possible requirements and also as buffers in different domains that it functions in.

- If a new joinee leaves right after acquiring the training without earning any revenues, it is a loss for the company.

- If this happens in large numbers, there would be a need to hire new work-force time and again

- Also, firm will now have to train a new employee for the suddenly arrived requirement.

This is a loss-loss situation for the firm. Thus, a bond allows a company to obtain returns on investment they make in new joined employees.

Not Just Bond

- But again this bond can make an employee serve a certain period not retain him for life-long.

- For this a company needs to ‘bond’ with employees, understand their needs and develop a feeling of belongingness in them

As rightly stated in ‘The Ice Cream Maker’ by Subir Chowdhury ‘An employer needs to make its employees invest themselves in the work’, and there needs to be a culture of inclusion of employees in the activities of the firm (in form of feedbacks or opinion poll). These and many other factors make an employee choose to stay in a company and that is a big return on any firm’s initial investment.

Thus, it is just not about signing a bond but making a bond.

Employment Bonds- a mere formality??

While a lot of perspectives on employment bonds have already been shared, I would just like to append that such bonds are not restricted to work alone. Such bonds are ubiquitous and are found in various fields such as education and medicine even.

In medicine, students have to sign a bond, by which they have to mandatorily serve a period of one year in rural places. They have to serve one year as interns in some village. Infact in Army Medical Colleges this tenure is greater. Students have to pay as much as 5-7 lacks as fine incase they fail to serve this period.

Companies like Infosys, where I have worked , do not enforce these contracts very seriously. They make new hires sign a one year contract, but many of my friends left the company before the period. Also, they did not pay a compensation to the company. On some occasions a letter was sent to their homes, but the company did not follow up. Thus, I believe such bonds serve no useful purpose if they are not taken seriously but considered just another formality. Companies believe that an employee should stick in their company for a stipulated period of time just so that they can recover the money spent on the training of the employee. But it might so happen thatan employee could stay in the company for the stipulated time and still add no value to the company. Infact that the employee could cause more harm than good if he says back in the company. Also, there is a possibility that an employee is so efficient that he has given back more than his share of dues to the company even before the tenure mentioned in the contract has expired. In such cases, I believe having a pre-decided time frame for a bond does not serve its purpose and works against the employees.

Why a bond at all.....

Each company has its own criteria to form a bond as per its requirements. It basically revolves around:

Ø the training expenses borne by the company,

Ø the cost involved in recruiting the employee,

Ø the threat of competition.

In present circumstances, when unemployment is soaring high every moment, there is hardly anything that an ordinary person can do about it. If at all an employee refuses bind by such an agreement, it is he who is losing and not the employer. There are certainly a myriad number of potential candidates for the job who will not hesitate accept such kind of bonds where there are restricted departure from the firm before a prescribed time period.

These bonds are essentially drafted to protect the employment interest of the employer as the employees, once they are trained, seek for better incentives, improved work culture and higher pay. As experienced people are preferred for many of the jobs, it becomes very essential for a firm to keep a check on more and more employees leaving the organisation after gaining experience and utilising it for their own good.

Any such bond is justified if it gives both employer and employee an equitable chance to benefit from each other. It is favourable to both the parties if it does not curb the growth opportunities of the employee. Even if it is too restrictive, it will not do much good to the company because if an employee is not satisfied with the job, it is likely that the performance will deteriorate. This can cost the company even higher than employee attrition.

These bonds have become quite indispensable due to increasing competitiveness. The cases of solicitation of employees are increasing daily and it is no more a secret that what it can cost to an organisation if it is not proactive in curbing it. In order to cover up the cost of recruitment and training of the employee, and to gain as much as possible for the effort made so as to acquire the employee, it is rarely possible for an organisation to do away with an employment bond.

The real value of the Bond.

While there is no doubt that employment bond are used by organisations as a means to deter their employees from leaving, the opinions differ when it comes to actually implementing it. Some have argued that companies are not that strict on it and give partial relief depending on the situation while some of the experiences of my friends suggest otherwise. Though it is beyond my reach one of the interesting statistics to get would be the ratio between the “income” the company had from these bonds (determined by the attrition rate and assuming a recovery rate say 90 percent) and the total amount the company spent in training these employees. I fear that this ratio may well be over 1. One of the reasons is that many companies give on the job training where the trainee is expected to work on some of the real projects under a guide and so the value delivered by the trainee justifies the cost of the training. In fact it is same as a regular job except it’s a little less rigorous and accountability is low. Also in many cases the trainer is an employee of the organisation and doesn’t charge as much as an external trainer should. So the employee who left within 2-3 months of joining gets a raw deal. One of the ways in which this situation can be alleviated is that the bond should be priced at a pro rata basis. Suppose the bond is worth Rs 100 and for 2 years. So if an employee leaves in 6 months he should pay Rs 25 (one- fourth of the value). This will prevent hardship for the employees who go for higher studies or discover that the job does not suit them and they have to look at other avenues. Ending on a personal note I would say I was lucky to work for an organisation who didn’t believe in employment bonds though the training given to all new joiners was very enriching and one of its kind to say the least.

Bond is only on pen & paper!

With the opening up of Indian Economy there has been a myriad entry of foreign players thereby increasing the job opportunities in all sectors i.e. manufacturing , services etc. The demand for qualified and experienced persons is on the rise with hefty pay packages and lucrative offers. But it is disheartening to see the practices of the companies to hire (solicit) experienced employees as well as the practices to curb the movement of their own employees to other companies. Serious efforts are being made by the employers to devise methods to restrict an employee from leaving the current employer and to somehow prevent him from seeking employment elsewhere and almost all the companies take extra care to draw up elaborate and complicated employment contracts so that a fear psychosis is put on the minds of the employees from the thought of leaving the employer. Also in the plea of providing "training", the demand for bank guarantees of heavy sums is an impediment for the employees to look for career growth. The innumerable bonds that the companies sign with their employees are just a way to deter them from leaving the organization.

In this race of restricting employee mobility the companies have vehemently flouted the fundamental right embodied in Article 19(1)(g) of the Constitution of India that allows the citizens the right to practice any profession or carry on any occupation, trade or business subject to reasonable restrictions in public interest. Any amount of arm twisting tactics & fine tuning of employment contract cannot deter the citizens of this country from exercising their right.The most important legal provision which safeguards the rights of the employees is contained in Section 27 of the Indian Contract Act, 1872 which reads as under : -

“27. Agreement in restraint of trade void - Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent

void.

Exception-1 : Saving of agreement is not to carry on business

of which good is sold

Though the reasonableness is decided on a case by case basis but mostly any "negative covenant" in the employment contract cannot curb the freedom of the employee in seeking employment elsewhere after the termination of the contract.

Sounds like a necessary evil !!

I think nothing in this universe lives without a bond. Bonds like atomic bonds (electrochemical, covalent etc) are the building blocks of everything we see around us. Bond like what our planet has with the Sun enables it to get its nutrition and provide necessary conditions for life. Bonds with one’s own family, relatives, society and country have always been well known, written and advertised. Even bonds like government bonds are an essential cog in the wheel for an economy. Now, in this myriad of bonding around us, can anybody let me know how could an important relation like that of an employer with its employee remain unsecured?

Actually, it is very unwise of those people who say that there should be no bond and employees should have free mobility. I would like to ask them how they would feel if their girlfriend (or a friend) leaves them tomorrow saying that he/she has found a better one on whom they have done a considerable investment in terms of time, money, emotional content and what not. Here I’m not saying that the employment relationship is as personal like someone’s love life or friendship, but definitely some respect has to be provided to such kind of a relation. When an employer spends lakhs of rupees to train its employees to achieve market qualifications, then it definitely keeps a plan behind to make use of that investment. In this selfish world, nobody would care to provide water to even a person who is dying by the roadside. So where does the question of charity arise? Companies do have the concept of ROI in their minds while providing training to an employee, an ROI which is determined by the competition in the industry and the market as a whole.

Now with all this in mind, it can be conjectured that bonds are necessary for a company’s survival in the competitive environment. But how does it sound when somebody says that bonds are a kind of necessary evil. Well not a bad thought I guess. Nobody likes to be tied down to a relation for long. It is in the human nature and comes in package with the behaviour too. Actually this feeling has been bolstered by the concept of democracy and freedom which is becoming the standard for societies across the globe now. Same is true with the employees who get fed up with their organizations due to a plethora of reasons starting with pay structure and perhaps ending with unclean toilets and start saying “This Company sucks”. So the simplest way out is to leave the firm and join another. Again, clarifying the view here, bonds are necessary taking in consideration the firms’ benefits and investments; evil because they tie down people to serve somebody who they don’t feel worthy and put restriction on their freedom.

Therefore, in this game of opposing forces, laws need to be laid down to properly understand and legalize employment relations in this field. Conflicting laws across lands and the ensuing decisions only make the matter complex and do not serve the purpose for either of the sides. This needs to be sorted out to make the situation better and comprehensible. But the debate would continue for ages to come. Some will accept while some will refute.

Employment Bond: A Covalent Bond between the Employer and the Employee

Ruskin Bond once said, “To be able to laugh and to be merciful are the only things that make man better than the beast”. Perhaps he took into the consideration the rate at which the world is progressing today. These days people belong to nobody and nobody belong to them. The competition has been growing exponentially and the whole world is in a sorry state of affair. Every one is seeking one’s own profit and forgetting the greater goal of serving the society.

Now why I brought this up here is simple. Consider this situation:

Had the world been a perfect picturesque, probably every person would have acknowledged the other person’s favor and would have returned it in due course of time. Incase of an employment, when an employee and employer decide to get into a professional relationship, the employer would have gone to the maximum extent to train his employee and support him in troubled times. And in return the employee would have worked relentlessly without expecting much from his employer. In such situations probably there would have been no attrition at all.

But let us admit it, such is not the case. People are greedy- greedy for money, power, position and respect. And it is due to this greed that an employee decides to abandon his employer in the midst of their relationship and join another firm which indeed promises him a better position and pay. Needless to say, that an employer in such situation feels cheated not because he lost a talent but he lost on the investment he made on that particular employee. Talking in terms of Return on Investment, the employer return on his big investment is zero. The investment includes the cost of training the employee, the cost of retaining him and all other tits and bits cost that the employer has incurred. In such situation expecting merci out of the employer is pointless. The employer has every right to demand back the money that he loses when the employee decide to put an end to their so called established relationship.

So what should the employer do in such situation or in other words how should the employer ensure that that he gets back what he has invested if not positive returns. The only way is to get it back from the employee. And how to ensure that the employee pays is simple- make him sign a bond, that guarantees that the employee has to serve the employer for a minimum of certain period or else has to pay back the entire amount as specified. Fair enough as far as the employer is concerned though the employee might feel that he is the one who is at loss.

Now let us look from the employees’ perspective. Modernity has dawned upon man and in this era of super computers, no one can afford to be slow. Every now and then the rules of the game change and it is required that the player adopt himself to such changing rules as fast as he can, lest he has to face the fury of this fast moving world. Gone are the days when frequent changing of jobs were looked down upon and the employee considered as fickle and inconsistent, today if one sticks to his job for a relatively longer period of time then his competency is questioned and his caliber is doubted. In such situations the employee is in a serious dilemma of whether to stick to his current employer and be loyal to him or to change jobs so as to prove his competence. Now that he is forced to sign a bond, he has no other option but to wait for the period until the bond expires and then only decide to change job or else pay the fine and switch to a better job offering better profile.

Here I would like to cite my personal experience as evidence that how such bonds change people’s decision and how it changed my life. In my engineering days, I was recruited by a software giant XYZ company (name hidden for confidentiality reasons). I was happy that I got through the company. I had planned out everything for my future. What I had decided is I would work for a year, get some industry exposure and then try my hand at management. But all my plans were shattered the day when I received my offer letter. It had a 2 years of bond or else I would be liable to pay the entire fine which was in lieu of the training cost. Following is an excerpt from my offer letter:

Service Agreement:

“As XYZ will be incurring considerable expenditure on your training, you will be required to execute an agreement, to serve XYZ for a minimum period of 2 years after joining, failing which, you (and your surety) will be liable to pay XYZ Rs.**,***/- towards the training expenditure.”

Overseas Deputation / International Assignment Agreement:

If you are on international assignment, you will be covered by the XYZ International Assignment policy from the date of deputation.

Accordingly, you will be required to sign the applicable Overseas Deputation / International Assignment Agreement/s. In case of every international assignment that exceeds 30 days, you will be required to serve XYZ as per the Notice Period mentioned below.

This is to ensure that the knowledge and information gained by you during your assignment is shared and available to XYZ and its associates. This transfer of knowledge and information is essential for XYZ to continue to serve its clients and customers better.

If you are deputed internationally for training, you will be required to sign an agreement to serve XYZ for a minimum period of 6 months on completion of training.

Notice Period:

If you are covered under Deputation Agreement / International Assignment

Agreement, either you or XYZ can terminate the traineeship / appointment by giving

90 calendar days written notice as set out in the Separation Policy of XYZ.

XYZ reserves the right if it is in the interest of the business and current assignment,

to ask you to complete your notice period.

Seeing this agreement, I decided not to go ahead with the decision of joining this firm instead I preponed my decision of joining a B-School and here I landed up doing my MBA. So needless to say bond does put a significant impact on people’s lives.

So ideally what should an employer do to avoid such situation in the first place. What the employer need to understand is the employee’s need. Every employee seeks to have a challenging role where he can prove his mettle. And for that the employer need to search in various avenues to help the employee find his dream profile and does not get bored with his routine life and job description. On the other hand the employee needs to be patient enough and wait for his employer to give him numerous opportunities.

I know this is a bit difficult to achieve, but if achieved nothing like it. Till then I believe this fight will exist. And it is up to the employer and the employee how they can bargain a fair share of deal. I would say this employment contract acts as a covalent bond between the two parties keeping them together. Every person involved makes a sincere effort to please the other party involved even though he might not enjoy doing so. This is today’s world and today’s corporate structure or as James Bond quotes “you may call it professional courtesy”.

Tied with an employment bond

The primary reason a company requires an employee to sign an employment bond as a huge sum of money is spent on the employees training and development programs. Thus an employer would expect the employee to stay with the organization atleast long enough to justify the expenses incurred. Also, equally important is the fact that some skills are acquired over a period of time and if the employee is trained for a specific duration of time and then wishes to quit , it would be difficult for the employer to find a replacement. No company would like to let go of an employee after training him/her with the best of their resources , equip them with highly sought after on the job skills and then see them quit to move on to greener pastures. Thus, bonds are signed at the time of accepting the employment or sometimes even later,which require compensation to be paid incase an employee wishes to quit before a stipulated duration of time. However, if a company asks an employee to sign a bond as to not to terminate the employment relationship and accept alternate employment before a specific duration it could amount to an agreement in restraint of trade.

It can also be seen as a gain for both the parties- Employer pays for the training and in turn uses the employee’s services for atleast a minimum time period. If such a bond were considered illegal a company would solely have to rely on good faith and the employee’s loyalty to the company. As the carrot and stick approach goes, a combination of rewards and punishments is required to induce a desired behavior. Thus, if there is no deterrent in the form of a legal obligation, it will not be suprising to find employees maximizing their benefits and moving on. But on the other hand bonds might also act as a deterrent for prospective employees from taking up the job offer. In some companies employment bonds are a common practice as a need to stop early attrition. However, at companies like Deloitte where I worked for a few months, employment bonds are signed only when an employee is sent for an onsite assignment. As the company incurs all the expenses with respect to the travel and training such a bond is justified. No one can be forced to sign an employment bond. It is upto the employee to evaluate its merits , consider if the value addition/training is worth being bonded and then make an informed decision.

Can employment bonds help to retain the bond with the employee?

Posting late in the forum, is a little disadvantageous, because most of the important points would have been exhausted or worse reiterated a number of times. But it also has its own merits, I had the opportunity, to go through a number of views, which exhaustively covered the analysis of the topic. So, I will use this opportunity, to put the analysis in a concise format, adding my own views in between.

Objective of bonds:

The main motive behind employment bonds is employee retention. Companies want to reap the benefits of training them or sending them offshore.

But why do employees want to leave the organisation:

The main reasons why an employee chooses to leave are because of low salary, less job satisfaction, people wanting to switch verticals or people wanting to do higher studies. The basic underlying reason is that the employer is not satisfying the needs of that employee.

Is the objective met?? ?

In any of the above cases, the employee will either be willing to pay the money and leave the organisation right away, or instead of paying the money, they can simply perform poorly and then get terminated (reverse constructive discharge). I have seen my own friends from Infosys, who wanted to leave and did not want to face the wrath of bonds, so started performing poorly in all the tests and got terminated. There are also people who wait for the contract period to get over and leave the organisation. In any case, the company is not retaining the employee. The company just defers their movement, with the objective of utilising all the skills the employee got out of the organisation.

But, what happens is that, the performance of that employee deteriorates because of low satisfaction, and the company ends up paying a poor performer. The benefits gained out of trying to maximise the utility of the employee is neutralised by their disinterested performance.

What is the solution??

As it does in marketing, in employment relations too- a pull strategy works better than a push strategy. Instead of forcing the employees to stay, employers must find positive ways of retaining the work force. i.e The employees must be themselves motivated to stay in the organisation. Even if they leave the organisation, due to some unforeseen reason, they must have some motivation to come back to the organisation in the future.

For example, in my case, I did not have a bond in MindTree. MindTree’s policies are that, they trust their employees and a bond is not required to make them stay with the organisation. I joined the company, because I was waitlisted around 108 in XIMB and there was no chance of clearing it.(until the seat increase in the last minute) I had to leave in two months; right after the training, the benefits of training me was lost. But I was so much impressed with the culture and the workplace of MindTree, that even in future, I would be very happy to go back and work there. If my friends, do ask me, I would motivate them to apply for MindTree. Probably, that should be the edge companies should be aiming it.

As pointed out by Sarang, employee bonds cannot be totally avoided in very intensive and highly specific high end training. But, it can be totally eliminated in entry level training, especially in case of IT companies, where the cost incurred is lesser than the benefits reaped by the organisations.

From a psychological and economical perspective, positive ways of employee retention are in any case better than bonded labour. Specifically, we are talking about knowledge workers here and it becomes even more important to motivate the employees to stay rather than to force them to stay. As Ashutosh has crisply put it, at the end of the day, company’s work culture matters the most for employee retention.

Bonded Labour..!

Companies in developing countries are increasingly using Employment Bonds to preserve their bench strength and tackle attrition.

I believe it to be a step taken backwards, back to the days when people used to be enslaved by the capitalists in lieu of their inability to payoff loans.

The approach to Employment Bonds and that of bonded labour may differ but the essence remains the same. Employees are forced to stick to a company for a stipulated period of time and if they fail to do so then a sum of money is forfeited.

These clauses are enforced on the employees without taking into consideration their career prospects in the current company.

Mass recruiters have been the pioneers in enforcement of Bonds to its new joinees because of obvious reasons

· These companies pitch for new projects on the basis of their bench strength which is in a way preserved by these employment bonds.

· They spend a certain amount of money on the training of these employees which they intend to recover from the services of the employee during the tenure of the bond.

Having worked for Australia and New Zealand Banking group i can differentiate the HR policies of Multinationals and those of their home grown counterparts.

The policies of ANZ truly reflected the Australian approach to people policies where every employee is given equal importance and the policies inherently were very liberal leave aside the question of Employment Bonds . The focus was towards work life balance and not towards making your life imbalanced by work. This fostered a healthy culture among employees and in turn produced better performance from employees.

I am aware of companies like Cisco, Microsoft, Goldman Sachs, Google and few others (courtesy my friends who work for them) which follow similar attitude towards their employees.

The issue of Employment Bonds and other kinds of restrictive covenants are the results of conservative capitalist thinking which would require a slow and gradual approach to do away with.

Bond Ultimatum

Like everything else, my opinion about employment bonds have also changed with time. Thanks to the change in my occupation. Few months back, had someone asked me about bonds in job market, I would have strongly disapproved it for the simple reason that it limits the mobility of the employee by putting financial constraints mentioned in the bond. In the first sight, it seems to be pro-employer tactic but now as I am pursuing my business studies, I can see the issue from the employer’s point of view too.
Bonds, as Mukul Sachdeva put it rightly, are the tools used by the organizations to safeguard themselves against the investments made in employees and also to discourage them to switch between the companies too often. Today companies spend too much on trainings and skill enhancing courses of the employees; it is true that most of them are mainly to improve the employees’ performance and not much of personal value addition to them. The advantages of these trainings and skills in employee’s career do not exactly outweigh the economic hardship faced by the employee on serving the bond while leaving the organization. This argument clearly means that it’s the employee who suffers more but there’s more to this.
In today’s competitive age, everyone is demanding more hikes, more perks in their jobs and ironically the same has become difficult for many companies to provide, thanks to the recession and economic slowdown. This only encourages employees to switch jobs more frequently which is not very good for the companies. Consider an employee who is working on a crucial project and suddenly he decides to quit. The costs incurred in getting a substitute and training her can significantly increase the opex of the company.
A quick look at the legalities of the matter - The Supreme Court of India has clearly stated that no employee can be forcefully employed against his will, just because he has signed a contract with the employer. Also, 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. So, it tells quite a bit about the law regarding the employment bonds.
One more noteworthy point here is that there are some big MNC’s which do not have any contractual bonds for example I worked in Nokia Siemens Networks which did not have anything like that. There was just a notice period of 2 months from both the sides which had to be honoured failing which some amount had to be paid which was generally the salary of 2 months.
Bonds CAN be used by the employer to get undue advantages but the stakes are higher for the employer as there can be significant dependencies and the costs incurred in case an employee switches in the middle of some prior engagement with the employer. All said and done, I agree that the repercussions of these bonds are harsh for the employee to withstand and probably it is not fair on the employer’s part to limit the employee’s ‘freedom’ of choice; but to this I can only say – Who said Life was meant to be Fair?

Bond or no bond - It all boils down to a company's work culture

Let me begin by narrating a statement made by the Senior Vice-President of Cognizant to a group of fresh recruits (which included me) during our induction program a couple of years ago. In clear cut terms he said, "All we expect from you is continuous support in order to solve our client problems. Cognizant is your company and we do everything possible to ensure that you work for Cognizant under your own will and desire. Till the day you feel you are genuinely committed to the company treat it like your home but the very moment you have doubts about your commitment and want to move on, please feel free to do so." At that point, this sort of a statement sounded very blunt to me and made me wonder as to how could an employer so directly establish the lack of dependency on its employees. However, I felt the true essence of this statement an year down the line when I could see my friends at other IT companies wanting to part ways with their respective companies and being unable to do so because they were made to sign employment bonds. On the other hand, here I was, with no restrictions on me whatsoever and yet completely satisfied with the one year stint at Cognizant.

In today's age when terms like "Employee Empowerment" are gaining rapid momentum, trust between the employer and the employee is of extreme importance. A clear cut way of establishing this trust is by 'not imposing' an employment bond. Of course there are many who still feel that businesses should be bereft of the intangibles and hence an employer has every right to make full use of its resources even if that means putting employment restrictions. The true reasons behind imposing an employment bond are stated to be on the terms of attrition reduction and preventing misuse of training costs but then what could explain the fact that Cognizant has one of the lowest attrition rates in the industry. Even Cognizant incurs huge training costs on each of its recruits and stands a huge risk of employees moving on once they have acquired the necessary skills but then its the 'trust factor' that plays such a crucial role in preventing this. What more its a clear cut message to the employees stating, "We trust ourselves enough to ensure that you would want to be a part of the company at your own will." Such a small gesture goes a long way in an employee building enough confidence in his company.

Given the fact that majority of the businesses these days operate in the knowledge industry wherein employees are a company's biggest asset, its obvious that your most important assets should be given enough freedom to operate at will. At the end of the day it all boils down to a company's work culture. If the work culture is conducive to the employees' well being, you don't need a signed piece of paper to ensure business continuity. At the same time if the work culture of a company itself reflects mistrust, even uncountable number of bonds would not be able to ensure high productivity.

BOND: A Psychological Barrier

For me, an employment bond is simply an instrument devised to exert psychological pressure on the employees so that the attrition level gets reduced. This has been reiterated by many participants. An apt metaphor for this would be “digging one’s own grave” which is the title of one of the participant’s posting. When campus placements began in my engineering college in mid 2005, the early recruiters were the software giants like Infosys, TCS, Satyam, Wipro, Accenture, Patni etc. I clearly remember students opting out of some processes because of the BOND issue. MBT (Now Tech Mahindra) was offering a fat package but at the same time had a bond period of 2 years. When someone already has plans for higher studies why would he join a company in such circumstances? The additional pay would definitely get mitigated incase one breaks the bond. Gone are the days when higher studies were encouraged by companies. Also when one gets the liberty of joining a company which is not offering an initial high package, then he will never into an agreement which will bind him for 2-3 years. Any company by including a bond in their recruitment process actually loses out on talent. Many people join such companies because they have no other option. Are they the right employees for the organization? Phew!! The HR head only knows…

My cousin sister, Priyanka Mohanty, worked for Satyam Computers, Hyderabad. She joined it in 2005 October and had a bond period of 2 years. She had her ambitions of higher studies and got through MICA, Ahmedabad in 2007. She had to join the institute in May, 2007. But her bond period was getting over only in October. She was in a fix. She took leave and attended the orientation for 15 days. But what next? If she leaves Satyam before October, then she would have to pay Rs. 2, 00,000. Incidentally she caught dengue in June and was admitted in a hospital. Her colleagues including the head HR and her PM came to know about this. They even came to meet her. She took advantage of this and went on extending her medical leave although she was fit and fine in 15 days. She then resigned in September, served a notice period of 1 month and by end of October completed got relieved. This was also the end of the bond period. Though the company did not give her an experience letter, she saved herself of the 2 lakh rupees. The moral of the story is that it is not impossible to escape from the limitations imposed by a mere piece of paper.

The above story had another dimension too. Priyanka was mentally prepared for the legal proceedings had she broken the bond. She knew that she was not in a disadvantage because of the fact that employment bonds in India are invalid legally. This proves that a bond is nothing more than a mental barrier. Many employees do not ant to undertake the legal hassles that follow. Yes we do have to bear the legal expenses but it would be next to impossible for a company to win this legal battle if at al it happens. That is the reason why many companies do not enforce this even after an employee violates the clauses involved. They either hold back his relieving/experience letter or cut a substantial amount from his final settlement dues. Drawing an analogy from the Lawyer versus manager debate, even this story had two perspectives. She could have thought like a lawyer and resigned immediately thinking that Satyam would anyways lose out on the issue. But she thought more like a manager and played the waiting game taking some wise steps and timed her steps accordingly. At the end she was a winner. Her salary slips were enough to prove her work experience. Thus instead of succumbing to the fear of an employment bond, one should tackle it and will surely find ways to overcome it.