Before we get into whether this practice is right or not, let us see how they arrive at that particular figure, 1 lakh, 2 lakh or whatsoever.
Let us use what we have learnt in our financial courses. Suppose we have been given a task of giving the projection for business of training the employees and generating revenues through some B-plan. What shall we do?
1. We will look for the expenses incurred in training the employee.
2. We will have our own projection for the business (profit), we will be generating with this employee.
3. We will try to break-even the expenses and income and determine the minimum period the employee should remain employed with us to get back at least the investment made in training him (adjusted for the time value of money (interest) of course)
4. Beyond the break-even point, we will expect him to work for some more days, so that we can get the desired profit. As put by Marx, Profit is nothing but the surplus produced by the employee over the wages he receive. So, whatever work he puts in after the break-even was profit for the company and if we resigns before this break-even point we consider it as a loss.
(Whether the company is supposed to always go for profit is beyond my purview here. That argument will be akin to the one between Capitalism and Socialism. I am assuming here that everyone accepts with capitalism and that is my base of this discussion)
So, for the company to recover (along with profit), the investments it has made in training an employee, two parameters are aconsidered.
1. Time period of 1 or more years so as to get their investments back along with the interest
2. If the above case fails, it is expected from the employee to pay back the company, the opportunity cost of investing in him/her.
In case of my ex-employer (Infosys), the bond amount is expressed in terms of lab hours - no. of lab hours used multiplied by Rs. 250 per hour (for using the infrastructure and trainers) (I feel Rs. 250 is justified compared to the facilities we enjoyed)
I am not totally against the employee, restricting them to jump jobs. At the same time I feel, it is not wrong on the part of the companies, (which has the burden of answering its shareholders for their investment) to claim their investment/ opportunity cost back.
3 comments:
This is the first thing that struck me as well- how do they arrive at particular figures for these bonds. Thanks for providing some clues on the same.
The natural ancillary to this particular thread of thought is perhaps the realization that the bond amounts more or less relate directly to the market worth of the employee. So if the employee sees a better opportunity beckoning at him, in terms of job satisfaction or career growth or whatever, the restriction of the bond is not after all going to be much effective. What such bonds do prevent is the arbitrary change of job, it forces the employee to ensure that the gain that h/she is aiming for by quitting the present job is more than equal to what the bond amount is. This seems fair enough to me, as it gives the employer a kind of protection to trivial whims and caprice of the employee.
However, it is another issue whether there is any such effective measure available to the employee to protect him/her against the whims and caprices of the employer
Well Santosh. You have given a good background as to why a firm fixes a certain amount as the bond amount and the calculus behind the figure.
But do you think employment bonds are just about the cost factor involved and the pay back period (break even calculations ? ) Why then certain companies like IBM, Microsoft etc. don't have it ? Don't they incur costs of training- infrastructure costs, man hour costs etc. ?
I think the story is bigger than this. It's not all about attrition hedging as well. Aren't bonds a pep into a firm's culture and practices ?
@ Sundeep
Yeah I partly agree with you that you could be beyond just the pay back. As Amrita has put, it could protect the employer against the caprices of the employee or even a psychological barrier to protect the company.
But I doubt if it could be practiced just because other companies have this practice or because it has become a culture. There are costs involved in drafting the bonds and other operational expenses (like HR for getting it signed). I don't think a company would be incurring expenses just because it is just there in their culture.
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