Though most of the organizations prefer their employees to sign a bond only to reduce attrition but does it really help them? Employees who are determined to leave the organisation will not give proper efforts towards their work. And the company ends up paying the employees instead, till the end of the bond period.
The employees who pay the bond amount for breaking the contract do so only to get the final settlement and more importantly the experience certificate. I have a few friends who left their jobs within the bond period and without paying the money and they opined they wouldn’t need the certificate as their future employers were ready to accept them only with the salary slips of a few previous months. They did so because they were ignorant about the legal consequences and their present employers never came hard on them by dragging them to the court.
And most of the cases that we come across where an employer drags the employee leaving the former within the bond period happen for senior executives only. From these cases I can infer that it matters a lot at senior level but employers are hardly bothered about employees leaving at entry level posts. Or maybe it is organisation specific.
In one of the examples in the original post it is mentioned that an employee returning from onsite has to serve the organisation for at least 1 year or has to pay 1 lakh rupees. But if the employee really wants to quit the job (for various reasons), will he (the onsite returned person) stick to the employer for 1 lakh rupees? After all 1 lakh rupees is just some odd 4000 dollars for him which he would have been earning every month for 2-3 yrs in the onsite project.
Saturday, March 13, 2010
Bonded without a Bond
‘Bond’ is one of the major concerns that people have while accepting any job offer. Sometimes the presence or even the absence of a bond majorly influences the candidate’s choice. Employment bonds that require long term commitment (3-4 years) are not very pleasant and in many cases outweigh the benefits of any job profile.
I would like to take this blog as an opportunity to share my personal experience. Post the recruitment process of IBM at our engineering college campus, in response to one of the queries related to employment bonds, an IBM executive said “We believe in only one bond; the common bond that all the IBMers share”. This statement acted as a confident booster, and I was clear in my mind about joining the organization after the completion of my graduation.
Bond does not necessarily foster loyalty towards the organization; it is the organization’s culture that plays a more important role. In fact, a stringent bond may make the job offer less desirable. Having said this, I would also like to state that I don’t disagree with the concept of employment bonds altogether. Many industries, especially IT industry, spend so much in training their employees. They will be at a great loss if they are not able to get the returns from the employees who leave the company soon after they join.
The point I am trying to make here is that companies should have a bond, if at all they have, which is not very undesirable. In order to achieve that, companies should try to minimize their training costs. Many companies outsource their training to various institutions. Having an in-house training department will help them reduce costs. Assuring some benefits to the employees on the completion of one year or may be two years with any organization will be a good incentive for the employees to not leave the organization. Finally, bond should not be exercised when the employee resigns for some specific reasons like higher education.
In a nutshell, the presence of the employment bond should not outweigh the lucrativeness of a job offer. Employees seek freedom whereas the company seeks to minimize losses. An employment bond should serve both these purposes.
DOCTOR Bond
Talking about employment bonds I would like to bring this very issue in front of my friends where the Government is trying to force doctors to join rural villages by making one year rural posting mandatory before medical PG course. The rural posting is a mandatory eligibility criterion for admission of young doctors into post graduate medical courses. The incentives also include double salary and other amenities being made available. Earlier the Government had only called for special incentives for the doctors who join rural areas but now they had to make it compulsory because of the low turnout of doctors willing to take up their jobs. This compulsion has not gone well with the students as according to them 1year is a long period to spend in villages. It takes 5 years to complete a MBBS degree after which a 1 year internship and a 3 year MD has to be completed before they can start practicing in private clinics or hospitals in order to earn their salary. A full quota of 9 years of struggle before being able to earn whereas in comparison an engineer or a MBA can earn in 4 to 6 years.
In Orissa the situation is very bad. Against a requirement of 12,000 doctors in the state only about 2,500 doctors are working with about 70% of the health institutes in rural areas’ running without doctors especially the KBK region where the health situation is worst. Doctors are afraid of the prevailing health situation there add to that the fear of naxalities attacks. We must all remember the various NGO’s working very hard in order to improve the health conditions over there. Recently concern worldwide had also sent us a mail for an innovative idea worth a prize money of Rs 1, 00,000 for improving the performance of health workers in the remote communities of Orissa. If the new doctors do not join the rural areas then the whole health sector would fail in Orissa. The doctors on the other hand have threatened for a mass resignation movement and went on strike. But after government invoked ESMA the doctors postponed their strike but are raising their demand for better incentives.
Hence the doctors who would complete their PG diploma and degree in 2012 and 2013 from both the government and private hospitals would have to sign a bond and join government hospitals. Government would pay the doctors an honorarium of Rs. 20,000(Rs. 23,000 in case of diploma and Rs. 25,000 in case of degree holders). In case of any violation, the doctors have to pay back an amount of around Rs. 15- 20 lakhs. These doctors are expected to be posted at Area hospitals, Community Health Centres and District Hospitals.
BONDS- Do they make a difference?
Ruskin Bond, James Bond and Employment Bond – the three bonds which every person is expected to come across in his lifetime. To appreciate true literature we need to read Ruskin Bond’s stories; to understand the true super-hero concept we need to believe in James Bond; and to understand the intricacies of employment and understand the relation between employer and employee one has to face an Employment Bond. We have to understand that in today’s world where nothing comes for free, the relation between an employer and employee is a give-and-take relationship. If an employer is imparting certain training and giving job security and paying you certain amount for your labor, he in turn expects output and above all responsibility for one’s outcome and loyalty to the organization. But in today’s generation where nothing is permanent and competition is the new mantra, employees turn to bonds and contracts to retain their workforce. The lure of power and position and better salary is too much for an individual to remain loyal to one organization.
Though, legally in India no employer can bond any employee by any bond. The legal system of India clearly abolished bonded labor system long back, and under no circumstance no person can bound other by any contract to waive of his legal rights guaranteed under the constitution of India, Article 19 guarantees the right to work and this right neither can be waived of by the employee on his own will nor the employer can force any contract in contradiction to above mentioned article. But, yes an employer can bond his employee for payment of any expenses incurred by the employer as part of training provided to employee, and this training is provided to an employee by the employer for increasing his productivity in the organization as an employee.
Not only software firms but also other industries incur huge expenses to train their employees. For example in aviation industry certain pilots are sent for exclusive training to fly certain aircrafts or the Banking sector where training is provided pertaining to the processing of the banks work (which any way they have to do if they are hiring a fresher). But in return if the employees leave after receiving the training then it’s a huge slap on the face of the company. So, companies make their employees sign certain contracts or bonds to make them return to company and utilize the learning. But, if the bond conditions are too partial towards the employer, then the conflict of interest arises. We usually see freshers are made to sign bonds to stay with the company for 2-3 years after the training is completed. Here the company assumes each trainee to give his best performance, but again we see employees being given the pink slip due to bad performance. We also see a diametrically opposite case when certain employees excel in their work and in return are lured by other companies with better salary and work. So what do we decipher out of this? Are employees forced to sign a bond when we know that his performance is the key determining factor? Employees with poor performance are easily allowed to leave, as can be concluded from various instances, and the difficulties arise for employees with high performance.
So when does the conflict arise? It arises when employees try to leave the organization before their contract term expires and at the same time are unwilling to pay the amount specified in the bond. But they were already aware of the bond terms when they signed the agreement. So why is the huge hue and cry? One of the participants has shared her experience in which her HR head was kind enough to suggest alternative options instead of paying the huge amount. But, I don’t think all employers will be so kind enough and let their employees (that too high performing employees go so easily). Is it justified for the employees to pay the amount?
Yes it is. But, if a company trains staff and cannot provide the work that it trained the staff for, then they can't make financial demands unless they provide those people with a job in that field elsewhere and pay them a salary.
"Employees...These Bonds are ACTUALLY to keep your quicksilver mind at rest. It’s a Blessing in Disguise for you.”
The world is changing fast. And so are the people living inside it. Previously people loved to maintain status quo in their lives. A stable decent earning job and a peaceful family life with two kids was all that they demanded. Things are no longer the same.
The hunger does not seem to subside these days. Everybody wants change and demands independence. The ambit of the word "MORE" keeps on widening. Today’s young brigade demand - "Both ways is the only way I want it”. Impatience is the buzzword for them.
Young graduates are quite often fickle-minded and are always on the prowl to switch to better jobs. Switching multiple jobs for higher pay might sound good and is lucrative in the short-term. However, this really damages the long term career prospects of an individual. This is one fact that young professionals find it hard to believe but never the less they learn it the harder way.
A few important aspects of an employment relationship are -
· Trust between the employer and the employee ; and
· Loyalty towards the organization in which one is working.
Trust, Loyalty and honesty towards one's work will always reap rich dividends in the longer-term. This might sound hackneyed but is indeed true. The truth about success and life is that they are actually quite simple; it is we- human beings that make it complex by our actions.
If we look closely at the employment bonds, they are mainly stipulated for management and graduate trainees. More mature and senior employees do not require these kinds of stipulations as they very well understand the importance of commitment towards one’s organization. Yuppies these days generally have an erratic behaviour and do not like anything that puts restriction on their freedom and movement. "Anything" may be family, relationships, spouse and even Employment Bonds.
Signing of an Employment Bond is the Commitment with the employer to stay with the organization for a specified period. And these days, Commitment has indeed become a rare commodity. Employers have no choice but to come up with a framework like this to overcome the unstable behaviour of their young employees. They are completely justified in taking recourse to Employment Bonds. Otherwise what will happen is that - the employer puts in the efforts to train and groom the trainees and then later sees them joining their competitors.
It’s something like parents providing education to their children and helping them stand up on their own feet. But only to later discover that the child has grown up and leaves them for better avenues in his life.
What young management trainees fail to realise is that Employment Bonds are actually a blessing in disguise. On the face of it, it might seem that they curb an employee’s freedom and restricts his mobility by binding him to the current organization. However, the truth of the matter is that these bonds keep an individual focussed on his work during the early years of his career. It helps him avoid external distractions and keeps him focussed on building on his knowledge and skill base. He learns to face difficult things and overcome adversities. Employment Bonds inculcates in them three virtues (PPC) - Perseverance, Patience and Commitment.
And yet People say – Employment Bonds are harsh and unjust on Employees. Actually the problem is something else. Human beings never understand things- the simple way....they only learn it through a harder and more stringent way.
bonding by force
If the only tool you have is a hammer, you tend to see every problem as a nail.– Abraham Maslow
Well this is what the companies today are seeing as easy option to tackle the problem of retention. The hammer used is forcing employees to be under employment bond contract. This concept of the binding employees for a certain period is not new. History has witnessed this in feudal times, though in a different context, as bonded labor. In bonded labor, the entire families work for certain period (usually infinite) to pay back the liability. While in employment bond the employee has to work for a certain period to pay back the liability of training expenses spent on it. The consequence of breaching the bond is usually to pay a huge sum of money.
Before being part of an organization, when the employer asks the employee to sign a bond of certain period, it sends the signal to the employee that the employer doesn’t trust him/her. How can a relationship be build, if before the formation of it, the basic element of trust is at stake? Loyalty cannot be induced by compulsion. As the quote says “There are only two forces in the world, the sword and the spirit. In the long run the sword will always be conquered by the spirit.” The spirit is important to retain the employees rather than the force of sword. As Ashish Sehgal has mentioned in his post, the employer might lose out on key talent due to the employment bond contract acting as a deterrent.
Moreover, signing bonds every time the employee is sent on overseas training or work makes the employee feel as outsider to his company. This may not result in full commitment and dedication towards work.
In Pepsi vs. coke case, the Delhi high court gave verdict that employees have fundamental right to look for better job opportunities. Then why do companies restrict them on doing so? One point which Santosh Kumar durai has suggested in his post is that Companies can justify this bond on the basis of recovering their training expenses until the breakeven point ( i.e the point at which the training cost is recovered by the work contribution of the employee). But, such breakeven point is difficult to measure and subjectivity comes into it. Only because of few individuals who leave the job early, penalizing the entire workforce with a strict employment bond doesn’t sound reasonable.
In case of army , where the contract ranges from 5-10 years , many of Indian Army Officers are working in the institution against their wills but as a bonded labor( as cited by Daily Mail). The Officers sign a bond while joining the army under which they have to pay a huge amount of money to army in case of quitting the job, they do not dare to do so due to poor financial conditions but work with a dead heart after being posted to duties at stations like Kashmir. These findings indicate that even young female commissioned officers are no exception in this direction. A female officer of the Indian Army committed suicide by shooting herself in headquarter of the army's Northern Command, a couple of years back, as she was "dissatisfied and unhappy with her job". She wanted to quit the army but could not do so as "she had to pay the bond money to the army". This clearly shows that in such an institution like army where loyalty is very important, a bond cannot induce it rather has severe ramifications like suicide. Moreover, Can the employees give full commitment to their work when their soul and heart is not in the job at hand?
Employment bonds are mostly pro-employer. Many of the posts have clearly mentioned the employee’s perspective. There are many reasons why the employee would want to change the job before the bond period. Some of them as reflected through the posts are higher studies, better job, unfavorable working conditions, marriage, cultural misfit, disliking the present job etc. There can be also a situation where in a company lands in bad shape and employees want to quit. Would company dissolve the bond in such a situation? Well Satyam relieved its employees from 2 year bond restriction. Not all companies will go for such wise decision. In that case the plight of employees working in these firms would be pathetic as they would be forced to work in unsecure conditions. Moreover, In case of HCL where the employees were forced to resign, would such resignation be considered breach of employment bond and hence penalized (in monetary terms).
As Binayak has mentioned in his post: (No matter how stricter the bond is) Bonds do not assure lower attrition rate or increase in loyalty. They work other way round. Cognizant has no bond but its attrition rate is 11.2% which is comparable or even less than other IT majors like Infosys(11.6%), HCL (12.8%) etc. Moreover, as many posts have mentioned breaking a bond is a common phenomenon in IT companies.
So what I feel is that if some companies can do away with bonds, bonds are not necessary requirements. Rather than bonds, better strategies like excellent working culture, good pay, respecting employees, giving growth opportunities, stock options induce loyalty and help in retention of talent force. Regarding the question of loss on investment money and time spent on training the employees who leave the job early, the economies of scale achieved on training the employees retained would cover the loss of disloyal employees. If it doesn’t then company should be ready to bear that loss as bad debt which is inevitable. I would like to end using a quote: “The glue that holds all relationships together - including the relationship between the leader and the led is trust, and trust is based on integrity.” So, Trust should hold priority in building a strong employment relationship.
Well this is what the companies today are seeing as easy option to tackle the problem of retention. The hammer used is forcing employees to be under employment bond contract. This concept of the binding employees for a certain period is not new. History has witnessed this in feudal times, though in a different context, as bonded labor. In bonded labor, the entire families work for certain period (usually infinite) to pay back the liability. While in employment bond the employee has to work for a certain period to pay back the liability of training expenses spent on it. The consequence of breaching the bond is usually to pay a huge sum of money.
Before being part of an organization, when the employer asks the employee to sign a bond of certain period, it sends the signal to the employee that the employer doesn’t trust him/her. How can a relationship be build, if before the formation of it, the basic element of trust is at stake? Loyalty cannot be induced by compulsion. As the quote says “There are only two forces in the world, the sword and the spirit. In the long run the sword will always be conquered by the spirit.” The spirit is important to retain the employees rather than the force of sword. As Ashish Sehgal has mentioned in his post, the employer might lose out on key talent due to the employment bond contract acting as a deterrent.
Moreover, signing bonds every time the employee is sent on overseas training or work makes the employee feel as outsider to his company. This may not result in full commitment and dedication towards work.
In Pepsi vs. coke case, the Delhi high court gave verdict that employees have fundamental right to look for better job opportunities. Then why do companies restrict them on doing so? One point which Santosh Kumar durai has suggested in his post is that Companies can justify this bond on the basis of recovering their training expenses until the breakeven point ( i.e the point at which the training cost is recovered by the work contribution of the employee). But, such breakeven point is difficult to measure and subjectivity comes into it. Only because of few individuals who leave the job early, penalizing the entire workforce with a strict employment bond doesn’t sound reasonable.
In case of army , where the contract ranges from 5-10 years , many of Indian Army Officers are working in the institution against their wills but as a bonded labor( as cited by Daily Mail). The Officers sign a bond while joining the army under which they have to pay a huge amount of money to army in case of quitting the job, they do not dare to do so due to poor financial conditions but work with a dead heart after being posted to duties at stations like Kashmir. These findings indicate that even young female commissioned officers are no exception in this direction. A female officer of the Indian Army committed suicide by shooting herself in headquarter of the army's Northern Command, a couple of years back, as she was "dissatisfied and unhappy with her job". She wanted to quit the army but could not do so as "she had to pay the bond money to the army". This clearly shows that in such an institution like army where loyalty is very important, a bond cannot induce it rather has severe ramifications like suicide. Moreover, Can the employees give full commitment to their work when their soul and heart is not in the job at hand?
Employment bonds are mostly pro-employer. Many of the posts have clearly mentioned the employee’s perspective. There are many reasons why the employee would want to change the job before the bond period. Some of them as reflected through the posts are higher studies, better job, unfavorable working conditions, marriage, cultural misfit, disliking the present job etc. There can be also a situation where in a company lands in bad shape and employees want to quit. Would company dissolve the bond in such a situation? Well Satyam relieved its employees from 2 year bond restriction. Not all companies will go for such wise decision. In that case the plight of employees working in these firms would be pathetic as they would be forced to work in unsecure conditions. Moreover, In case of HCL where the employees were forced to resign, would such resignation be considered breach of employment bond and hence penalized (in monetary terms).
As Binayak has mentioned in his post: (No matter how stricter the bond is) Bonds do not assure lower attrition rate or increase in loyalty. They work other way round. Cognizant has no bond but its attrition rate is 11.2% which is comparable or even less than other IT majors like Infosys(11.6%), HCL (12.8%) etc. Moreover, as many posts have mentioned breaking a bond is a common phenomenon in IT companies.
So what I feel is that if some companies can do away with bonds, bonds are not necessary requirements. Rather than bonds, better strategies like excellent working culture, good pay, respecting employees, giving growth opportunities, stock options induce loyalty and help in retention of talent force. Regarding the question of loss on investment money and time spent on training the employees who leave the job early, the economies of scale achieved on training the employees retained would cover the loss of disloyal employees. If it doesn’t then company should be ready to bear that loss as bad debt which is inevitable. I would like to end using a quote: “The glue that holds all relationships together - including the relationship between the leader and the led is trust, and trust is based on integrity.” So, Trust should hold priority in building a strong employment relationship.
Sparsh-A touching bond
Agreeing to what Vivek says, it has become highly imperative of companies nowadays to have bonds in place to keep in check mindless attrition by employees. I have personally come across many people who have joined companies just for addition of CV value and increase in their bargaining power. From the onset it’s in their minds to make as much benefit for them as possible and leave with a lucrative offer in hand.
On e of my friends, lets call him BNG was working for a very small IT firm. He had a lot of interest in datawarehousing (DWH) but DWH being a costly proposition he was not getting many opportunities to learn the same at his company. By hook or crook he somehow managed to get into Wisdomsys.At Wisdomsys he worked on AbInitio, a latest software, one licence of which costs around 2-3 crore rupees and Is used by only the high and the mighty banks. During his stint at Wisdomsys he became fluent in the working of Abinitio and pretty soon got an offer in a multi national bank in Mumbai at double the pay package.
This is but one example of how people are using employers as a catapult to drive them to the next level and the companies are paying through their mouth for such people.Wisdomsys has said that the training it imparts t costs around 3 lakh rupees per employee, so just think the investment being made by the company wherein it recruits around 25000 employees per year.
I am not saying that all the companies are pro employees, its just that the companies going for the bond is a reaction to mindless employee switching. The value of the training can be gauged from the fact that employees who are not deemed to be fit after training and laid of by Wisdomsys are picked up by companies at huge packages (3 people of our training batch –picked up by oracle at thrice the package).
Nidhi says that companies make people to serve notice period, I say what’s the problem in that? We can’t just let people walk in and out of offices as and when they feel like, when crores of rupees are at stake, it’s even more important to keep a tab on the most important resources. For eg if I am the most important resource and I decide to leave my company in a jiffy, then what face does the company show to the clients for whom I was the company. Will the clients feel as comfortable working with the new guy as they did with me? Won’t It make the client rethink on their decision of doing business with the company.
I personally had very amicable separation with Infosys just as Swati did .My Delivery head and project manager went out of their way to make it easy for me on hearing of my going for higher education .It was only because of their efforts that I was able to complete all formalities even after giving a notice period of 22 days when the mandate was for 3 months. I agree to the point made by Shweta parekh where she says that bonds are usually psychological tools employed to make employees function to the whims and fancies of the employers. But usually the company doesn’t want to make u pay unnecessarily.
So my advice to newbees joining companies would be look before you jump ship, give your job the respect you expect other people to give it and don’t go in for mindless job switching. At the end of the day while your chances of meeting Ruskin and James are quite slim but one mistake and you have every chance of meeting your employment bond.
P.S- Does James bond have an employment bond with MI-6? If so does it include restrictive covenants as well?
On e of my friends, lets call him BNG was working for a very small IT firm. He had a lot of interest in datawarehousing (DWH) but DWH being a costly proposition he was not getting many opportunities to learn the same at his company. By hook or crook he somehow managed to get into Wisdomsys.At Wisdomsys he worked on AbInitio, a latest software, one licence of which costs around 2-3 crore rupees and Is used by only the high and the mighty banks. During his stint at Wisdomsys he became fluent in the working of Abinitio and pretty soon got an offer in a multi national bank in Mumbai at double the pay package.
This is but one example of how people are using employers as a catapult to drive them to the next level and the companies are paying through their mouth for such people.Wisdomsys has said that the training it imparts t costs around 3 lakh rupees per employee, so just think the investment being made by the company wherein it recruits around 25000 employees per year.
I am not saying that all the companies are pro employees, its just that the companies going for the bond is a reaction to mindless employee switching. The value of the training can be gauged from the fact that employees who are not deemed to be fit after training and laid of by Wisdomsys are picked up by companies at huge packages (3 people of our training batch –picked up by oracle at thrice the package).
Nidhi says that companies make people to serve notice period, I say what’s the problem in that? We can’t just let people walk in and out of offices as and when they feel like, when crores of rupees are at stake, it’s even more important to keep a tab on the most important resources. For eg if I am the most important resource and I decide to leave my company in a jiffy, then what face does the company show to the clients for whom I was the company. Will the clients feel as comfortable working with the new guy as they did with me? Won’t It make the client rethink on their decision of doing business with the company.
I personally had very amicable separation with Infosys just as Swati did .My Delivery head and project manager went out of their way to make it easy for me on hearing of my going for higher education .It was only because of their efforts that I was able to complete all formalities even after giving a notice period of 22 days when the mandate was for 3 months. I agree to the point made by Shweta parekh where she says that bonds are usually psychological tools employed to make employees function to the whims and fancies of the employers. But usually the company doesn’t want to make u pay unnecessarily.
So my advice to newbees joining companies would be look before you jump ship, give your job the respect you expect other people to give it and don’t go in for mindless job switching. At the end of the day while your chances of meeting Ruskin and James are quite slim but one mistake and you have every chance of meeting your employment bond.
P.S- Does James bond have an employment bond with MI-6? If so does it include restrictive covenants as well?
" For Bonds "
One of the biggest disadvantage to think and ponder too much over any topic is that firstly, half of your ideas are either already used by the public, and secondly after reading the posts of your colleagues you realize the other half were never worthy enough to post, so in that sense I have already wasted a lot of time. Let me get straight to the point.
The analogy served by Ankit Singhal has forced me to stretch my thinking contours, keeping aside the perplexity of the issues involved, but the analogies which I am going to offer tend to be more inclined towards ethics as per the subjectivity rather than to be studied under the purview of a subject or a field of study like Employment Relationships, as is the case relating to Bonds itself is.
The 1st analogy is from a 1983 movie titled Avataar(Starring Rajesh Khanna and Shabani Azmi)
The movie is about a husband and wife, played by Rajesh Khanna and Shabana Azmi respectively, who had 2 sons.Both the sons were bought up, taken care of, provided good education despite all the economic hardships, hoping like any other parents that their sons will take care of them in their geezerhood. But that was not to be as both the sons after completing their education, took plum jobs , married and then moved on with their own lives. Similar story is of another movie titled Baaghban(Starring Amitabh Bachchan and Hema Malini), where the 4 sons were reluctant to live with their parents.
I used the analogy of Parents and a child from both the movies,just because of the simple fact that both the movies clearly exhibit how the parents were treated like God in the childhood, but later on when kids grew up 'smart' enough, the same parents became a liability for them. The fact that every child knows that whatever they are today is because of their parents only who provided them the best education and make them able to present themselves in the society, makes the whole episode all more unfortunate.
The relationship between an employer and an employee is somewhat similar. An employee who joins an organization , does not join an organization to perform and excel in his/her career, rather then he/she is joining that organization just as one rung in the ladder to move further in the corporate world. Had that not been the reason, there would have never been such hullabaloo over the employment bonds. The company which spends hundreds and thousand of rupees on the training of the employees expect some fidelity from the employees in terms of commitment to stay in the organization for a certain period of time.
Of course, the organization cannot hold anyone back form moving onto other organizations, infact most of the references which a candidate seeking employment in a newer organization offers, are from past employers only, again explicitly exhibiting the responsibility which an organization assumes in promoting the career prospects of an individual. Thus employment bonds, in my opinion do not aim to restrict the movement of the employees, rather than its just a token of commitment form the employees for their employers.
However in India, the populist bug has hit the judiciary as well it seems(despite politics), where the most number of cases are seen through he spectrum of Balanced equities approach, i.e. keeping in mind the larger interests of the society, i.e. the employees. In this context, the rights of the organizations seems to have taken a backseat which in turn have forced the organizations to resort to more stricter bonds and tries to enforce them with more force.
In my opinion, each and every case should be dealt differently. An employee may be leaving the job for pursuing his higher education, like most of my colleagues did, in this case the clauses of the bond could be relaxed, whereas in other cases like where an employee leaves an organization after spending say 6 months just for a higher pay package, in this case the clauses could of the bond could be enforced.
The freedom of mobility does not give the right to individuals/employees to play as per their own rules. You can move around your hand only as much as it does not come and slap my face. After all its professional and competitive world out there. This makes the whole episode much more complex like famous chick egg equation--which come first. Whether the employer first starts trusting the employees or the employees starts trusting the employers.
Any answers?
The analogy served by Ankit Singhal has forced me to stretch my thinking contours, keeping aside the perplexity of the issues involved, but the analogies which I am going to offer tend to be more inclined towards ethics as per the subjectivity rather than to be studied under the purview of a subject or a field of study like Employment Relationships, as is the case relating to Bonds itself is.
The 1st analogy is from a 1983 movie titled Avataar(Starring Rajesh Khanna and Shabani Azmi)
The movie is about a husband and wife, played by Rajesh Khanna and Shabana Azmi respectively, who had 2 sons.Both the sons were bought up, taken care of, provided good education despite all the economic hardships, hoping like any other parents that their sons will take care of them in their geezerhood. But that was not to be as both the sons after completing their education, took plum jobs , married and then moved on with their own lives. Similar story is of another movie titled Baaghban(Starring Amitabh Bachchan and Hema Malini), where the 4 sons were reluctant to live with their parents.
I used the analogy of Parents and a child from both the movies,just because of the simple fact that both the movies clearly exhibit how the parents were treated like God in the childhood, but later on when kids grew up 'smart' enough, the same parents became a liability for them. The fact that every child knows that whatever they are today is because of their parents only who provided them the best education and make them able to present themselves in the society, makes the whole episode all more unfortunate.
The relationship between an employer and an employee is somewhat similar. An employee who joins an organization , does not join an organization to perform and excel in his/her career, rather then he/she is joining that organization just as one rung in the ladder to move further in the corporate world. Had that not been the reason, there would have never been such hullabaloo over the employment bonds. The company which spends hundreds and thousand of rupees on the training of the employees expect some fidelity from the employees in terms of commitment to stay in the organization for a certain period of time.
Of course, the organization cannot hold anyone back form moving onto other organizations, infact most of the references which a candidate seeking employment in a newer organization offers, are from past employers only, again explicitly exhibiting the responsibility which an organization assumes in promoting the career prospects of an individual. Thus employment bonds, in my opinion do not aim to restrict the movement of the employees, rather than its just a token of commitment form the employees for their employers.
However in India, the populist bug has hit the judiciary as well it seems(despite politics), where the most number of cases are seen through he spectrum of Balanced equities approach, i.e. keeping in mind the larger interests of the society, i.e. the employees. In this context, the rights of the organizations seems to have taken a backseat which in turn have forced the organizations to resort to more stricter bonds and tries to enforce them with more force.
In my opinion, each and every case should be dealt differently. An employee may be leaving the job for pursuing his higher education, like most of my colleagues did, in this case the clauses of the bond could be relaxed, whereas in other cases like where an employee leaves an organization after spending say 6 months just for a higher pay package, in this case the clauses could of the bond could be enforced.
The freedom of mobility does not give the right to individuals/employees to play as per their own rules. You can move around your hand only as much as it does not come and slap my face. After all its professional and competitive world out there. This makes the whole episode much more complex like famous chick egg equation--which come first. Whether the employer first starts trusting the employees or the employees starts trusting the employers.
Any answers?
'I' manage, 'I' bond...
USA and Japan have been the two greatest economic successes of the late 20th century. But how often is it that we have heard an American organization resorting to the Japanese management style or vice versa. In fact, global behemoths like IBM have been said to follow totally different approaches in these two countries while managing the enterprise.
But why would a company do so? Why is it that a management so successful in America would fail to generate profits in Japan? A reason for that could be that it’s the people who make the organization and Japanese and American cultures are so poles apart that it’s natural that the same management style would not work there.
Delving a little deep into this, American culture is highly individualistic and scores low on emotional security because of the high divorce rates and single parenting. They are used to uncertainties in life. So, a contractual job and lesser job security do not bother them. Americans consider this a measure of their toughness and take this challenge as a motivation to work harder. This enhances their productivity as the culture at home and workplace are in balance.
Japanese companies on the other hand, propagate life time employment. This is because Japanese people place high value on bonding and have strong ties in the family and the community.
The above mentioned examples prove that a management style that is rooted in our culture would be more successful than adopting a management style followed in some other country.
India has not produced very many successful managers in spite of having one of the best pools of technocrats and doctors. This is probably because of our failure to develop an indigenous management style, a style that apes our culture and our values.
We Indians place high priority on family ties and belongingness. When we encounter a job environment that practices the American/Western style of management, we are not able to adjust to the cultural differences and are not as productive as our American counterparts.
Indians prefer to take life easy and job security thus is one of the most important factors. The existing system generates a fear for the same. In current market scenario, where there is so much competition, the aspect of job security has diluted. This is where the human aspect of management needs to take over. The employees should be made to feel that they are the company’s major assets. This can be done through trainings and welfare schemes. This would, in my judgment, increase the level of commitment towards the organization.
In many cases where it does not happen, as has been mentioned in the posts of Tuktuk and Suchitra, the employees care to move on. The employment bonds not being legally enforceable in our country, serve little more than being a psychological barrier. As so many people break the bond, it implies that the financial liability that comes with it is outweighed by the proposition offered by the other opportunity. So are bonds actually serving the purpose of reducing attrition or preventing knowledge workers from quitting and helping cover the training costs?
I would like to cite an example from my company where one particular employee was allowed flexible work timings as there were certain medical complications with his then pregnant wife. This not only removed a big problem of his, but also helped keep him motivated and today, he is one of the most dedicated employees of the company.
So what I am suggesting here is that we need to adopt management practices that are Indian-people friendly and rest on our values. We need to put in more emphasis on belongingness and attachment than trying out forcible methods such as bonds. Whether it has more aspects of the American or the Japanese style is not our prime concern.
Though proposing a management style would be naïve, but one of the most flexible management style I have come across is the Sama dana danda bheda philosophy which talks about handling people according to different situations with diplomacy. The story revolves around Prahlada Maharaja, the son of Hiranyakasipu. He was taught that it is very important for a future king to learn these four principles. There will always be a rivalry between the king and his people. When a leader of the public agitates against the king, it is the king’s duty to try and pacify him and tell him that he is very important to the state and he should not bother others by this form of agitation. If the agitator is still not pacified, the king should offer him a lucrative post as a minister with a high salary. If he still does not stop, the king should try creating dissent among the public. Finally, if he still does not relent he should be placed under severe punishment.
Here Sama is the art of gentle persuasion. We try to persuade a de-motivated employee who wishes to leave, by proposing newer trainings and better facilities/opportunities for him. Dana is using donations/money to achieve one’s purpose. If the employee is still not motivated enough and is a high performing knowledge worker you can motivate him to stay with a higher salary or a better position. Bheda is the art of aggravating dissent among opposing parties. You try to motivate the other employees of the company through the Sama philosophy. This serves two purposes. First, the agitating employee would not be able to influence the other employees. Second, seeing the other employees motivated, the agitating employee could himself be pacified. Finally, danda is punishment where an employee who is still agitating and is a bad influence on others should be asked to resign or axed from the company.
We just cannot go on talking about our great culture on one hand and then completely avoiding it when it comes to management. What we need is a management style that is India centric and India specific.
B.O.N.D: Bet ON Numerous Disdain
How I see a bond after the entire course has come to an end from different perspective is that of a “necessary evil causing disdain to all”. The situations organizations individuals and any other entities related need to have a clear perspective of what is the requirement (May be need) to get out of the Chakravyuh. And you can bet on the fact that the wisdom of lawyers and with the armory of various acts and law suits an enticing web of connotation can be created.
Supposedly “As per the Indian Statute bonded labor system was long abolished and no bond can force any person to work against the employees wishes” But never in the sentence is mentioned that an employer cannot create an impression of bondage and the examples of that are highlighted specifically.
Some points that stick their head out within the e.gs are:
Paying bond money with the involvement of a third party
On site resignation requires the employee to know the law of that land.
Legal department to decide the approval on bond relaxation.
Oversees travel increases bond amount as well as time frame
Breakup of training costs not provided
Action restricting bonds for certain profiles
Bonus on completion of period
Proportionate payment beyond one year
Bond amount dependant on the strategic position held
No law change with time.
If we focus on the aspects and the cases cited the major words that come into focus are “Training”
“oversees” and “period”. All the bonds basically revolve around the three variables by changing either one or three of them. But the paradox of the situation is the disparity in the bonds of different companies and one of the major reasons that companies are able to receive such advantage is due to the information asymmetry.
Most companies try to implement a bond by citing reasons of “training” but is it clarified that the company has spend money on the personal grooving and enhancement of the employees, but not just a training in literal sense. Is the “training” judged on certain parameters to see whether it helps the employee in some way for his personal grooming or doing his job in a substantial way? Moreover oversees training attracts more without even highlighting the break up of costs in the employment contract.
Also some other facts that need to be pointed out is The loyalty award given by some companies on completion of the bond period while some companies are actually involving third party agreements and by the end of the bond period the employee has lost more than he has gained. Moreover in cases of disparity the legal department takes over the reign of the case who may not understand the situations related to the resignation or specific reasons that may have caused disdain to the employee.
Although the employers cannot be blamed for the process followed as Indian companies have tasted the advantage of having a bond and the kind of psychological advantage it can create by restricting employee movement at the start of his career. It cuts down the attrition; helps to garner back training costs and most of all create strategic and quality human capital. But a question mark still applies on the legal implementation of such bonds. An employee may break a bond and leave and the company may decide not to take legal recourse since the cost may be too high but an employer may not give experience certificates and other payments if the bond is not relieved after a substantial period is spent in the organization (about 2-3 years).
So with the culture, approach of the society and multinationals barging in we may see some more innovative ideas in contract manufacturing (some Indians may have outsource contract manufacturing to have some words placed together to just show we follow a standard as in case of OPGC). But at end of the day if at any point of time I have to come to some “ruskin BOND”- I may decide not to read his creation or for that matter I may not watch a movie of “james BOND” but can I ever question an “employment BOND” is a bigger query.
Bonding with the best: The examples mentioned center around the IT and the Public sector units. Similar employment /service contracts are also prevalent in the film and fashion industry. The aim of the contracts is to tackle high rates of attrition and fight competition.
An employment contract is nothing more than a financial liability, as most of us agree. But it does nothing to serve the broader purpose of retaining employees. Employing more positive measures as Tuktuk has put forth, is a step in the right direction. Measures like phase-wise training interspaced with on the job experience, as in the case of civil services can be effective. The common psychology of most knowledge workers is to experience continuous growth. Stagnation in work-life is the major reason to quit jobs. Ensuring faster growth within the organisation for employees could be another incentive for employees. Any situation which is not a win-win for both parties involved is not a sustainable venture.
In my opinion, it is a short-sighted approach to recover training and development costs through breach of bond payment. The higher purpose must be resolved through better HR policies and practices.
My Tryst with Bonds
Bond…the dreaded word for any fresher joining an organization…It was no different for me too…
So much has already been discussed in this forum on various companies’ practices in imposing various kinds of bonds. So I will instead try to share my personal experience with an employment bond with u all.
Soon after I completed my engineering, I joined this huge organization in mid July in 2007 after signing an employment bond of Rupees 2 lakhs which could be enforced in case I left before completing 2 years of employment. So effectively I had to remain in the organization before mid July 2009. But I had to join XIMB in June ’09 which left me one month short of my bond completion. Since Dec’08 the company was on attrition spree due to the global recession in the end of 2008. Many low performing employees were asked to leave, that too in a recessionary period when everyone was trying to stick to their existing jobs like glue. I thought I couldn’t have asked for a better period to put down my papers. The HR had waived off the bonds of a couple of people who were on bench and wanted to leave for higher studies. I assumed they were only too happy to have employees help them in downsizing. But I was wrong, and majorly so.
It so turned out that this special bond-waiver offer was only for the low-performing employees. So when I approached the HR with my case, they kept asking me why I wanted to leave for further studies at this juncture when I was performing so well in the organization and how difficult it was to give me more than a 50 thousand cut in my bond amount. So I approached my business unit head who told me he would love to have me in the organization for longer and that I could consider leaving for higher studies the next year. But realizing that I just had to leave, he extended his full support to me and put a word with the HR to not charge me anything. Though this helped, it was not of much use, since on the books my performance rating was high and the HR said that according to company policies they couldn’t officially relieve me with a complete waiver. It was during this period that I wondered why at all I had performed well. I was disillusioned with the whole system.
But the HR tried helping me out of this unique problem and they suggested that I go on loss-of-pay leave and come back in July end and formally put down my papers then. It would then be easy for them to officially complete clearance formalities without me having to pay anything. I negotiated with them to postpone this whole procedure to September end when I would be back home for Pooja holidays and they agreed given the support I had from the higher management who was very appreciative of my work. In September, given my time constraints, the HR helped me in completing all formalities within a day and I had a very pleasant exit interview, something I realized that I wouldn’t have had if I had not performed well.
Thus, I finally bid adieu to my organization in Sept’09, much after I had joined XIMB. This was my bitter sweet tryst with bonds and I shared it with you guys just to highlight how complex the treatment and enforcement of bonds can be, given the various dynamics surrounding the macroeconomic environment (boom, recession etc.), industry attrition trends, performance-related ratings and the power of the higher management’s recommendation in the company’s HR policies.
So much has already been discussed in this forum on various companies’ practices in imposing various kinds of bonds. So I will instead try to share my personal experience with an employment bond with u all.
Soon after I completed my engineering, I joined this huge organization in mid July in 2007 after signing an employment bond of Rupees 2 lakhs which could be enforced in case I left before completing 2 years of employment. So effectively I had to remain in the organization before mid July 2009. But I had to join XIMB in June ’09 which left me one month short of my bond completion. Since Dec’08 the company was on attrition spree due to the global recession in the end of 2008. Many low performing employees were asked to leave, that too in a recessionary period when everyone was trying to stick to their existing jobs like glue. I thought I couldn’t have asked for a better period to put down my papers. The HR had waived off the bonds of a couple of people who were on bench and wanted to leave for higher studies. I assumed they were only too happy to have employees help them in downsizing. But I was wrong, and majorly so.
It so turned out that this special bond-waiver offer was only for the low-performing employees. So when I approached the HR with my case, they kept asking me why I wanted to leave for further studies at this juncture when I was performing so well in the organization and how difficult it was to give me more than a 50 thousand cut in my bond amount. So I approached my business unit head who told me he would love to have me in the organization for longer and that I could consider leaving for higher studies the next year. But realizing that I just had to leave, he extended his full support to me and put a word with the HR to not charge me anything. Though this helped, it was not of much use, since on the books my performance rating was high and the HR said that according to company policies they couldn’t officially relieve me with a complete waiver. It was during this period that I wondered why at all I had performed well. I was disillusioned with the whole system.
But the HR tried helping me out of this unique problem and they suggested that I go on loss-of-pay leave and come back in July end and formally put down my papers then. It would then be easy for them to officially complete clearance formalities without me having to pay anything. I negotiated with them to postpone this whole procedure to September end when I would be back home for Pooja holidays and they agreed given the support I had from the higher management who was very appreciative of my work. In September, given my time constraints, the HR helped me in completing all formalities within a day and I had a very pleasant exit interview, something I realized that I wouldn’t have had if I had not performed well.
Thus, I finally bid adieu to my organization in Sept’09, much after I had joined XIMB. This was my bitter sweet tryst with bonds and I shared it with you guys just to highlight how complex the treatment and enforcement of bonds can be, given the various dynamics surrounding the macroeconomic environment (boom, recession etc.), industry attrition trends, performance-related ratings and the power of the higher management’s recommendation in the company’s HR policies.
Lets Bond
Employment Bond is common tool used by many organizations to restrict the ‘freedom of mobility’ of an employee for a period of one or two years from the date of joining. The company usually invests a huge sum of money in the training of the employee and it is only after a period of approximately one year that the employer begins to reap the benefits of the investment made on the employee. In case of lateral recruitment, while the expense on training might not be as high but the cost of acquiring the employee is high. Employer’s prime motive is to make profits, so it is justifiable on their part to have an employment bond for a period of 1 yr.
But in certain cases like Asatyam, where the employee takes loan to pay the employer a sum of 2 lakh and also pays interest for it to the bank. At the end of 2 years, though he gets back the sum of 2 lakh that he had paid but not the interest, this is not justified on the part of the employer; it should also pay back the interest amount. Similarly, in case of Chutney computer, the prime purpose of employee going onsite is server the employer’s business and not personal interest, so it is not justified to have a bond.
In a country like India where Bonds are not legally enforceable, they are only used as a psychological tool. Employers take advantage of the information asymmetry that exists between them and the employee to serve its purpose. Many companies also take the Bond money in advance, so that the probability of employee breaking the bond is reduced and they would not want to lose their money.
But in certain cases like Asatyam, where the employee takes loan to pay the employer a sum of 2 lakh and also pays interest for it to the bank. At the end of 2 years, though he gets back the sum of 2 lakh that he had paid but not the interest, this is not justified on the part of the employer; it should also pay back the interest amount. Similarly, in case of Chutney computer, the prime purpose of employee going onsite is server the employer’s business and not personal interest, so it is not justified to have a bond.
In a country like India where Bonds are not legally enforceable, they are only used as a psychological tool. Employers take advantage of the information asymmetry that exists between them and the employee to serve its purpose. Many companies also take the Bond money in advance, so that the probability of employee breaking the bond is reduced and they would not want to lose their money.
Lets Bond
Employment Bond is common tool used by many organizations to restrict the ‘freedom of mobility’ of an employee for a period of one or two years from the date of joining. The company usually invests a huge sum of money in the training of the employee and it is only after a period of approximately one year that the employer begins to reap the benefits of the investment made on the employee. In case of lateral recruitment, while the expense on training might not be as high but the cost of acquiring the employee is high. Employer’s prime motive is to make profits, so it is justifiable on their part to have an employment bond for a period of 1 yr.
But in certain cases like Asatyam, where the employee takes loan to pay the employer a sum of 2 lakh and also pays interest for it to the bank. At the end of 2 years, though he gets back the sum of 2 lakh that he had paid but not the interest, this is not justified on the part of the employer; it should also pay back the interest amount. Similarly, in case of Chutney computer, the prime purpose of employee going onsite is server the employer’s business and not personal interest, so it is not justified to have a bond.
In a country like India where Bonds are not legally enforceable, they are only used as a psychological tool. Employers take advantage of the information asymmetry that exists between them and the employee to serve its purpose. Many companies also take the Bond money in advance, so that the probability of employee breaking the bond is reduced and they would not want to lose their money.
But in certain cases like Asatyam, where the employee takes loan to pay the employer a sum of 2 lakh and also pays interest for it to the bank. At the end of 2 years, though he gets back the sum of 2 lakh that he had paid but not the interest, this is not justified on the part of the employer; it should also pay back the interest amount. Similarly, in case of Chutney computer, the prime purpose of employee going onsite is server the employer’s business and not personal interest, so it is not justified to have a bond.
In a country like India where Bonds are not legally enforceable, they are only used as a psychological tool. Employers take advantage of the information asymmetry that exists between them and the employee to serve its purpose. Many companies also take the Bond money in advance, so that the probability of employee breaking the bond is reduced and they would not want to lose their money.
Are bonds sacrosanct?
In most of the organizations mentioned, the bonds that an employee is required to sign almost always extend well beyond the training period. The main reason behind this, as has been mentioned in various other posts, is the interest of the company in making sure that it’s investment on the employee does not go waste in the event of the employee leaving the organization. The question that I would like to bring up here is the extent to which these bonds are actually adhered to. Are these bonds applicable to all the employees uniformly throughout the organization? Are the bonds actually strictly adhered to word by word? Who takes the responsibility of making sure that the clauses in the bond are followed?
As far as my experience with my previous employer goes, the answer to the first question would definitely be a “No”. Uniformity of a bond cannot be guaranteed across an organization. There have been many instances where relaxation has been provided to employees over a part of the payment and in some cases the entire amount of the bond. These deviations from the rule can be attributed mostly to the good relationships that these employees shared with their immediate reporting managers. These managers take up their cases with the higher management and are more often than not successful in getting the bond amount waived off. In most of the IT industries, there exists a clause in the bond that requires the employees to serve a notice period of around three months between submitting their resignation and quitting. This period is usually used to carry out the knowledge transfer activities. However, the scope of this clause is also not uniform throughout the organization and varies from employee to employee and project to project depending on the complexities of the task at hand.
Thus, it can be safely assumed that the very concept of bonds and their implementation is quite subjective and is to a large extent dependent on various external factors. The signing of a bond does not guarantee its implementation, most of the times there are various other complexities involved in their execution.
The issues related to a employment bond
First of all I am forced to think of the purpose served by the employment bond. Why the bond is in place ? Why is it always pro employer ? What are the reasons behind executing the employment bond ? When we see from the barbash’s employment relationship framework defined , organization is influenced by the cost discipline , and definitely in order to derive leverage on the costs involved , companies try to retain the employees and maximize the value obtained from them in return to the costs seen. As u can see , the organization even claims employees as the assets of the organization ,but in reality they are seen and treated as the “profit generating liability” . As such liabilities are expected to return in the form of profits , the bonds are projected as the psychological barrier for the employees to remain with the same organization .When we see it from the economics perspective ( supply and demand ) , it indirectly restricts the demand when there is a good supply and evidently good demand is there. The demand is always downward sloping with the price paid for the quantity decreases when the quantity increases. In the context of labor supply and employment dynamics , when there is a abundant quantity of labor available , the price exchanged is less for the labor and more bargaining power for the employer. When the availability of labor becomes less , more price is exchanged to get that labor which directly follows from the law of supply and demand. So keeping employment bond will create conditions in turn restricts the movement of labor , can cash on the talent . When we see it from the restrictive covenants perspective , the bonds are really a “virtual” covenant preventing the employee from competing . the” freedom of mobility “as enshrined in our constitution of section 27 of Indian contract act where an employee cannot be restrained to work , So I am really pondering as to whether this spirit of bond will stand in the way of employee trying to seek the best opportunity available. So just pondering to see in the pepsi coco cola case where the pepsi complained abt the poaching , if the pepsi in turn placed a bond on these employees and in turn appealed to the court abt the bond , what would have been the outcome ? will the court again say abt the freedom of mobility as the reason or favour the bond and verdict of thumbs up for pepsi. There are lot of situations where the conditions overlap over one another and may differ from case to case and the applicability of bond shall be a question to reason out.
Binding or Bonding ??
I believe that this whole concept of bond is a beautiful example of “balance of power” as what we have discussed in our first dialectic forum of non-negotiable offer. Now I agree that the different industries like IT, manufacturing, aviation, fashion etc all have their own rules but everything at the end revolves around the appropriate talent acquisition and retention as already pointed out by most of my friends. Ultimately at the end of the day it is the people who form the organization.
There is nothing wrong in talented people searching for new opportunities and simultaneously companies using measures like bond contracts to retain the employees. This is where the” balance of power” lies and how the two parties outweigh each other decides whose side is heavier.
In this ever evolving new economy, it is the knowledge and the ideas that are most valued. So the employees are at an above edge and the coming era has to be of free agents. The free agents work for their excitement and self expression and not for the particular company. The companies actually cannot claim for the intellectual property of the employees which is an integrated outcome of education, experience and external environment. And then binding them with financial liability is not at all justified, those who want to leave will leave. These bonds are a trivial deterrent to stop them and if companies are recovering their recruitment and training cost then I agree with santosh how they actually calculate the cost or it’s simply the wish of HR manager.
The objective of bonds seems to be too small when we visualize the entire scenario from the top. The need of the hour is that companies will have to be that competent that they are not helpless when the employees leave. They will have to develop a methodology wherein the control is not with a single entity but is shared so that when it comes to bargain than the company also can tilt the pan in its favour at least not using the defensive measures like bond.
Bond – Ek (A) Toot Bandhan
Of late, Bonds have become the most potent tool with organizations primarily to discourage the employees to look for other avenues and thereby control attrition. Though it is yet another HR policy that has underlying negative implications, it is being used in all organizations spanning across sectors. However, employment bonds have serious ramifications for organizations too.
Many potential candidates are deterred from joining the organization by these employment bonds and in the process employers lose out on hiring potentially good candidates. During my engineering days one of the companies for recruitment was a multinational chemical consultancy which offered a good profile and substantially good package. However, one of the downsides of joining the organization was a 3 years employment bond. An employee would be liable to pay 2 lakhs in case he/she do not oblige their contract. However, freshers who are looking to put their careers on fast track, consider it as a major roadblock. As such, many opted out of the recruitment process for that company.
However, even after that companies are making employment bonds stricter. With attrition rate going up in companies, particularly in IT sector, companies are making every move possible to prevent employees from leaving the organization. Some companies which earlier used to count the bond period from day 1 have started counting the bond period after completion of fresher’s training, in turn effectively increasing the bond period. Moreover companies which used to allow buyback of bond period by employees, have stopped that practice since their bond mentions that it is on the discretion of the company whether to allow buyback or not.
Not allowing the buyback of bond period is yet another arm twisting mechanism by organizations, wherein they force the employee to oblige long notice periods at any cost. If the employee wishes not to complete the notice period and leave the company in between, organizations blackout the employees name in database maintained companies wherein he won’t be employed by any of those organizations again. However, this is grave issue from two perspectives. Firstly, I believe even such strict policies do not deter employees from leaving the organizations if they are not satisfied with their jobs. The recent exodus of around 4000 employees from Infosys technologies last month only is a case in point.
Hence, to use employee bonds to control attrition might not be in the interests of organizations. Another issue is the length of the bonds. As being mentioned in earlier posts also employers need to determine the length of the employee bonds and their subsequent policies in the interest of both employer and the employee. If the company incurs huge costs and the training is very specialized in nature, employers may go for bonds only to the extent which covers their costs and other legitimate business risks. Though it would always involve subjectivity and some bias on part of the employer reaching to that figure would not be difficult for the companies since the components involved are known to them. However, companies should always bear in mind that such bonds are always a hurdle for an employee. Another important aspect is the notice period that these employment bonds cover. Many companies have as long as 3 months of notice period. Though such long notice period might be justified at top management positions, having long notice period at middle management and entry level positions would indicate the weakness of company to replace a resource at short notice. So notice period should be long enough only for knowledge transfer and resource replacement. However, employees must be given an alternative option to either buyback their bond/notice period.
Thought it involves lots of complex issues and interests of many shareholders like employers, employee, clients etc, but employment bonds definitely create distrust between employee and the employer.Many potential candidates are deterred from joining the organization by these employment bonds and in the process employers lose out on hiring potentially good candidates. During my engineering days one of the companies for recruitment was a multinational chemical consultancy which offered a good profile and substantially good package. However, one of the downsides of joining the organization was a 3 years employment bond. An employee would be liable to pay 2 lakhs in case he/she do not oblige their contract. However, freshers who are looking to put their careers on fast track, consider it as a major roadblock. As such, many opted out of the recruitment process for that company.
However, even after that companies are making employment bonds stricter. With attrition rate going up in companies, particularly in IT sector, companies are making every move possible to prevent employees from leaving the organization. Some companies which earlier used to count the bond period from day 1 have started counting the bond period after completion of fresher’s training, in turn effectively increasing the bond period. Moreover companies which used to allow buyback of bond period by employees, have stopped that practice since their bond mentions that it is on the discretion of the company whether to allow buyback or not.
Not allowing the buyback of bond period is yet another arm twisting mechanism by organizations, wherein they force the employee to oblige long notice periods at any cost. If the employee wishes not to complete the notice period and leave the company in between, organizations blackout the employees name in database maintained companies wherein he won’t be employed by any of those organizations again. However, this is grave issue from two perspectives. Firstly, I believe even such strict policies do not deter employees from leaving the organizations if they are not satisfied with their jobs. The recent exodus of around 4000 employees from Infosys technologies last month only is a case in point.
Hence, to use employee bonds to control attrition might not be in the interests of organizations. Another issue is the length of the bonds. As being mentioned in earlier posts also employers need to determine the length of the employee bonds and their subsequent policies in the interest of both employer and the employee. If the company incurs huge costs and the training is very specialized in nature, employers may go for bonds only to the extent which covers their costs and other legitimate business risks. Though it would always involve subjectivity and some bias on part of the employer reaching to that figure would not be difficult for the companies since the components involved are known to them. However, companies should always bear in mind that such bonds are always a hurdle for an employee. Another important aspect is the notice period that these employment bonds cover. Many companies have as long as 3 months of notice period. Though such long notice period might be justified at top management positions, having long notice period at middle management and entry level positions would indicate the weakness of company to replace a resource at short notice. So notice period should be long enough only for knowledge transfer and resource replacement. However, employees must be given an alternative option to either buyback their bond/notice period.
Pros and Cons
Employment Bond is a signed agreement between the employer and the employee stating the terms and conditions during the duration of the job period, it may also be enforceable in the event of a merger of an acquisition and in some cases it may also include certain clauses with are expected to be followed even after the completion of the specified time period. Bonds are viewed by most companies to be a security net in preventing high attrition rates. According to the organizations they are simply protecting their interests. The legality of an Employment Bond in India is however condition to its validity under the Indian Contract Act 1872. If the Bond meets all the requirements of the Act, it is considered to be legally binding.
From the point of view of the organization, one of the most beneficial uses of the employment bond is to protect itself from a high employee turnover rate. With an employment bond, the costs of finding or training new employees are significantly reduced. Employment bonds are used as tools by a company to “lock” an employee within a specified term. Moreover, these bonds play a prime role in enticing new talent to the company by offering them security within the market. On analyzing the other side of the argument, one of the biggest disadvantage of a bond is that it limits the flexibility of the company. Just as the bond compels the employee to serve the organization for a specified duration, it also compels the organization to employ the worker for the same.
Looking at the situation from the employee standpoint, we see that the scenario is not quite as rosy. There exists a decent amount a confusion regarding the enforceability of a bond. With the companies “looking out” for themselves, it comes as no surprise that sometimes the clauses in these signed contracts are at best unfair. For example an employee who wants to resign may have a negligible amount of time left for the legal period to end, say one month. It may be of vital importance for the employee to leave the company at this time. The limitation of the agreement is highlighted by the fact that the organization will not consider the amount of hard work the employee put into the company (sometimes even working nights). The company can choose to withhold the reliving letter and the recommendation letter unless the employee can cough up the charges for breaking the contract. This charge can be and is most probably an exorbitant amount, compelling the employee to continue working in the organization against his/her wishes. How is this situation fair when the Constitution of India clearly states that any man is entitled to exercise any lawful trade as and when he wishes?? Another example that can be cited here is a case of a merger or an acquisition. In most cases the contract signed with the old management is enforceable by new management. This is all well and good if the duties, responsibilities and the opportunities given to an employee remain unchanged under the new rule. What happens when the career advancements promised to the employee at the time of joining are not fulfilled??
So we see that the concept of an employment bond has a lot of gray areas, each with a significant number of implications. While drafting as well as signing a bond, both the employer and the employee should give careful consideration to all the clauses in order to protect their interests. It is also equally important to keep on renegotiating the terms and conditions when the bond expires.
Friday, March 12, 2010
"Bond"....in theory, and in practice.
There are two parties involved in a bond, the employer and the employee. From an employer's perspective a bond is a way to deter employees to leave the company for a specified period of time. There are two points here. The time specified and the amount to be paid. The period of the bond is decided by the company and it is generally the time in which the company can recover the cost it incurred to train the employee. The amount on the other hand is not based on the ROI. I have contrary views to most of the posts made about this issue. I rather agree with Satyajyoti's views that a bond is more a mechanism to prevent employees from leaving the organization. The basic flaw in the ROI argument is that an employee can leave at any time during the bond period, For example if there are two employees working for the same company and have signed a three year bond. One leaves in the 1st year and the other leaves after the second year. The ROI from both the employees is not the same, so how can the amount be same. The amount is just acts as a deterrent for the employees to leave the organization and go over to the competition.
Now lets look from the perspective of the employee. Prabhash has put forward a view that advance payment or bank guarantee for the employment bond is not appropriate. How can a company charge an employee for something which hasn’t occurred? How can they expect a fresher just out of college to pay the hefty amount before getting his first salary?. I went through a lot of posts related to the breaking of employment bonds and the picture I got was that breaking a bond is not a big deal for the employees. Employees quit without giving formal resignation(resignation letter can be a document for legal action). Thinking that the company will at most send you a few mails and call you a few times. Many queries have been asked and the general answer to them was that breaking a bond matters at the senior level but hardly matters the entry level. The downside was that "You will not get full and final settlement as well as relieving letter. So you should abandon the company on 1st or 2nd after getting the salary." and "You will not get the Company's part of the PF".
To the employees who were concerned about the legal implications, the tailor made answer was that the cost of the legal proceedings will be much higher than the amount to be paid and the company does not have time and resources to sue each and every defaulter. Some of the posts even quoted that "Employment bonds are only theoretically possible but practically enforcing it is impossible".
Now that the fact has been established that bond is necessary for the employer.The views bring to our mind certain questions-
Is advance payment or bank guarantee really unacceptable?
How can an Employment bond be practically enforceable?
How is the amount and the period of the bond decided?
How important is the relieving letter for an employee?
If there are so many loopholes to the procedure and people evade it on a regular basis, steps have to be taken to protect the interest of both the parties.
Now lets look from the perspective of the employee. Prabhash has put forward a view that advance payment or bank guarantee for the employment bond is not appropriate. How can a company charge an employee for something which hasn’t occurred? How can they expect a fresher just out of college to pay the hefty amount before getting his first salary?. I went through a lot of posts related to the breaking of employment bonds and the picture I got was that breaking a bond is not a big deal for the employees. Employees quit without giving formal resignation(resignation letter can be a document for legal action). Thinking that the company will at most send you a few mails and call you a few times. Many queries have been asked and the general answer to them was that breaking a bond matters at the senior level but hardly matters the entry level. The downside was that "You will not get full and final settlement as well as relieving letter. So you should abandon the company on 1st or 2nd after getting the salary." and "You will not get the Company's part of the PF".
To the employees who were concerned about the legal implications, the tailor made answer was that the cost of the legal proceedings will be much higher than the amount to be paid and the company does not have time and resources to sue each and every defaulter. Some of the posts even quoted that "Employment bonds are only theoretically possible but practically enforcing it is impossible".
Now that the fact has been established that bond is necessary for the employer.The views bring to our mind certain questions-
Is advance payment or bank guarantee really unacceptable?
How can an Employment bond be practically enforceable?
How is the amount and the period of the bond decided?
How important is the relieving letter for an employee?
If there are so many loopholes to the procedure and people evade it on a regular basis, steps have to be taken to protect the interest of both the parties.
Bond, please save my ROI
It is understandable that companies use bond to discourage employees to leave the company soon after acquiring special skills at company's cost. Companies train the employees with special skills. In many cases the training cost is very high. It is natural that they would expect ROI on training by utilizing the resources after training. It would be against the interest of a company if an employee quits just after acquiring the skills and the worse if he joins a competitor. Thanks to employment bond which provides some protection to companies in this regard.
The given examples speak the same story that, the companies use employment bonds to protect their ROI on the employees. In some cases, bonds intend to protect the ROI on training and in few others they intend to protect ROI on employees when they get onsite opportunity. In the first case the companies invest in technology, in building training infrastructure, hiring expert trainers etc. In the second case the companies invest in training the employees on soft skills required in the work setup at onsite, travel expenses, the opportunity cost incurred by the company when the skills /experience which an employee gains at onsite goes unused and untapped. So, it is obvious that being a business organization they would take steps to protect their ROI; apparently they found bond as the right instrument to serve this purpose.
What I don’t find appropriate is the advance payment or bank guarantee for the employment bond. How can a company charge an employee for something which hasn’t occurred? How can they expect a fresher just out of college to pay the hefty amount before getting his first salary? This policy is adopted by some of the IT companies. They are taking the advantage of the liberty they have got from the regulators and are tweaking the policies to their advantage. Apart from Asatyam, Swipro also has the advance payment for bond policy. In Swipro’s case the interest accrued on the deposit would be given to the employee at the end of the bond period. But advance payment itself is unjustified and is very taxing for the employees. This is high time for the regulators to wake up and stop the IT companies from imposing this type irresponsible, opportunistic and anti employee policies.
The reason why the Indian IT companies have adopted the advance payment could be that, earlier employees used to just walk away without paying for breaking of the bond. They knew that it is very difficult for the companies to enforce it as the company would not be able to track them out and also they wouldn’t bother themselves for couple of lakhs. I have seen ample of such instances in Asatyam, Wisdomsys and Swipro earlier when the concept of advance payment for bond wasn’t there in Indian IT sector. Even then, the company should have tried to address the causes for attrition rather than simply trying to prevent the movement of the employees through monetary impositions. This would affect employee loyalty and motivation and would bring disrepute to the company.
Few questions to deliberate on, if employees are penalized for quitting just after/during training, what protection do they have when the company fires them during that period? One may argue that hiring & firing comes under employment contract (employment at will) and the other one comes under the bond contract. But keep aside the legality part; are these two situations so distinct and separated? Why can’t we have something for employees as well?; like if a company fires an employee without cause during the bond period then the company would pay certain amount to the employee as compensation, so that both the parties get a fair deal.
The given examples speak the same story that, the companies use employment bonds to protect their ROI on the employees. In some cases, bonds intend to protect the ROI on training and in few others they intend to protect ROI on employees when they get onsite opportunity. In the first case the companies invest in technology, in building training infrastructure, hiring expert trainers etc. In the second case the companies invest in training the employees on soft skills required in the work setup at onsite, travel expenses, the opportunity cost incurred by the company when the skills /experience which an employee gains at onsite goes unused and untapped. So, it is obvious that being a business organization they would take steps to protect their ROI; apparently they found bond as the right instrument to serve this purpose.
What I don’t find appropriate is the advance payment or bank guarantee for the employment bond. How can a company charge an employee for something which hasn’t occurred? How can they expect a fresher just out of college to pay the hefty amount before getting his first salary? This policy is adopted by some of the IT companies. They are taking the advantage of the liberty they have got from the regulators and are tweaking the policies to their advantage. Apart from Asatyam, Swipro also has the advance payment for bond policy. In Swipro’s case the interest accrued on the deposit would be given to the employee at the end of the bond period. But advance payment itself is unjustified and is very taxing for the employees. This is high time for the regulators to wake up and stop the IT companies from imposing this type irresponsible, opportunistic and anti employee policies.
The reason why the Indian IT companies have adopted the advance payment could be that, earlier employees used to just walk away without paying for breaking of the bond. They knew that it is very difficult for the companies to enforce it as the company would not be able to track them out and also they wouldn’t bother themselves for couple of lakhs. I have seen ample of such instances in Asatyam, Wisdomsys and Swipro earlier when the concept of advance payment for bond wasn’t there in Indian IT sector. Even then, the company should have tried to address the causes for attrition rather than simply trying to prevent the movement of the employees through monetary impositions. This would affect employee loyalty and motivation and would bring disrepute to the company.
Few questions to deliberate on, if employees are penalized for quitting just after/during training, what protection do they have when the company fires them during that period? One may argue that hiring & firing comes under employment contract (employment at will) and the other one comes under the bond contract. But keep aside the legality part; are these two situations so distinct and separated? Why can’t we have something for employees as well?; like if a company fires an employee without cause during the bond period then the company would pay certain amount to the employee as compensation, so that both the parties get a fair deal.
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