Rata Tata Once Decided To Pay Lifetime Salaries Of Sacked Employees Along With Insurance

Ratan Tata, the former chairman of Tata Sons, passed away on October 9, leaving behind a significant legacy of corporate leadership and philanthropy. Known for his compassionate approach in business, one notable instance was his handling of Tata Steel’s employee reduction in the 1990s.

Rata Tata’s Humane Approach

During that period, Tata Steel was struggling with a financial crisis due to high wage costs, increased global competition after liberalization, and the looming threat of hostile takeovers as a result of economic reforms. The company was faced with two difficult choices: shut down entirely or cut its workforce in half, from 80,000 employees to 40,000.

Tata Steel’s wage bill was particularly high because the company had a tradition of paying employees more than the industry standard. To navigate this challenge, the company introduced an employee separation scheme, or voluntary retirement program, which became a model of how to conduct layoffs in a humane way.

What Were The Key Features Of The Scheme?

Full salary paid to employees until their notional retirement age.

Employees over 55 received their current salaries until retirement, while those between 45 and 55 were compensated at 1.2 to 1.5 times their salary until retirement;

Lifelong medical insurance for both employees and their families;

Three years of continued residence in company housing while employees found alternative accommodations;

In the event of an employee’s death before retirement, their family would continue to receive their full salary until the retirement age.

Despite warnings from industry experts who called the plan risky, the Tata group, under Ratan Tata’s leadership, implemented the scheme, supporting employees rather than opting for harsher layoffs. Fortune magazine later ranked this initiative among the world’s top 10 industrial decisions.

Ratan Tata, who directly owned 0.83% of Tata Sons, served as chairman from 1991 to 2012. Even after stepping down, he continued as Chairman Emeritus until his passing.

Tata, a recipient of the Padma Vibhushan, India’s second-highest civilian honor, passed away at Breach Candy Hospital in Mumbai on October 9 at 11:30 pm. He had been in intensive care since October 7. Ratan Tata was laid to rest with full state honors on October 10 in Mumbai.

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