We covered the deal between Verizon and Infosys in 3 different articles (Verizon Infosys Deal – What is Wrong in Terming it Slave Trade? and Verizon Infosys Slave Trade : US Employees Worst Affected, in the last 2 weeks. We talked about various issues faced by Indian employees who are being transferred to Infosys. In our third article, we promised to discuss about the impact on US employees. This article talks about issues faced by US employees:
Earlier this week, Verizon confirmed that it offered a voluntary severance package (VSP) to about 44,000 employees and that it will transfer over 2,500 IT staff – some rumors suggest the figure to be closer to 5,000 employees – to India-based Infosys as part of a $700 million outsourcing deal.
Verizon’s severance package mostly targets long-time employees – with more than 30 years at the company – and is also more generous than for its last round of buyouts, 13 years ago, giving employees 3 weeks of pay for every year worked at the company, capped at 60 weeks.
However, the severance offer excludes employees who are being ‘rebadged’ to Infosys and offered a 1-year retainer at the Indian company, most likely to train their replacements.
We are now writing this article on the basis of the Forbes report. According to Forbes, many employees who are targeted for VSP have 30 years of experience. They get a “generous severance package”.
But what about the employees being moved to Infosys. The total no of employees being moved as per Forbes guesstimate is around 5000. We assume this includes 1500 employees in India and 3500 employees in USA. (assumption 1)
We take average experience of employee who is moving to Infosys as 15 years (assumption 2). But for this employee, severance package of 3 weeks pay for every year of service will not be available, as they are given the option to move to Infosys.
Let us assume, salary for an average 15 years experienced employee is US $100,000 (assumption 3) and it translates to $100,000/52 = $1923 per week.
We will now derive how much Verizon had to pay as severance package to these employees in absence of Infosys deal: 3500 US employees * average 15 years of service in Verizon * 3 weeks of severance pay per year of service * $ 1923 per week = $ 302,872,500 (ROUGHLY 303 Million USD).
So as per the news published by Forbes, approximate severance package Verizon has to pay for employees amounts to 303 million USD. As per that news, these 3500 employees will not be given severance pay and they are left with no option than taking the Infosys offer. The cost to employees the employee involves not only the loss of severance pay but also many other factors which we will discuss later.
As per Forbes, Verizon employee will be offered a minimum of only 1 year of service in Infosys.
We will calculate how much employee earns with this 1 year contract: 3500 employees * $ 100,000 salary per year = 350,000,000. So, the total salary to be paid to Verizon employee will be $350 million for every year.
From this assumptions, let us try to to understand the following 3 scenario:
- What Verizon gains or loses in this deal?
- What Infosys gains or loses in this deal?
- What employees gain or lose in this deal?
What Verizon gain or loses in this deal?
If an employee accept for shifting to Infosys, he/she will not be paid any severance package. Verizon will make them work for 1 year free of cost (paying their salary from severance pay due).
- As Forbes article hints at (“offered a 1-year retainer at the Indian company, most likely to train their replacements.”) after 1 year, Infosys will terminate the employee’s contract without paying severance pay or very less severance.
- If an employee does not accept shifting to Infosys, he/she will be paid very less severance pay or no severance pay by Verizon. “Those employees aren’t eligible for severance payments and won’t receive their 2018 bonus if they are offered a job at Infosys and don’t accept it, according to materials given to the employees.” reports WSJ.
- The net result is Verizon fires 4000 employees without paying severance pay. This is a underhand deal to improve profitability. The cost of this project will be further reduced after 1 year by more offshoring after as Infosys can run the project with more offshore team members.
- This deal is profitable for Verizon in many ways and there is no cost to Verizon. With this deal Verizon takes money from employee pocket, uses it to make them work for 1 year and terminate them later without any legal obligations.
What Infosys gains or loses in this deal?
- As we derived, the employee salary cost alone for 3500 onsite employees in US is $350 million. In addition, there are 1500 employees in India which translates to a salary of about $100 million. So for this project, salary cost alone translates to $450 million. Usually employee cost for Indian companies like Infosys is around 40% of overall project cost. Working back total deal value for 1 year translates to $1,125 million. So if all 3500 employees join Infosys, there is no way Infosys can take this deal at $700 million? We are not certain about the deal value of $700 million is for how many years. But based on this calculation, Infosys cannot quote $700 million even for a year.
- Infosys has an employee strength of 200,364 as on 2016 and 89% of employees are based in India. The total no of onsite employees (remaining 11%) translates to 22,040 employees. We will take total US employees as 70% of overall onsite employees count. So total US employees at Infosys translates to 15,428 employees. So if we add 3500 employees to US onsite count, it is more than 20% increase . It is impossible for Infosys to manage such a huge onsite count for long period with a deal value of $700 million. So Infosys will not be able to retain most of the employees after 1 year contract period.
- Infosys signed this contract not without taking the above 2 risks into account. They would have agreed for some specific onsite numbers only to be transitioned. In other words, Verizon knows a high percentage of employee will not take the deal and promised much lower count of onsite employees will be transitioned to Infosys.
So Infosys will also not end up in losses and will be in agreement with Verizon as they would have assessed both the risks here.
What employees gain or lose in this deal?
- If employee refuses the offer, Verizon may end up paying lesser severance pay or no severance pay. In this way, employee loses their severance money in this indirect termination trick.
- If employee accepts the offer, he/she will be working 1 year and receive almost the same money as their eligible severance pay. In this way, Verizon made employees to work 1 year free of cost instead of paying severance pay.
But based on various posts in layoff.com, we understand many of the employees are preferring not to take Infosys offer due to the following reasons:
- They don’t want to join an India based company. There are hesitant due to their view of employment discrimination and exploitation in foreign companies.
- They may lose many other benefits they availed in Verizon. For example, vacation pay in Infosys is 3 weeks per year where as in Verizon it is 5 weeks. They fear their retirement benefits will be less in Infosys. Medical insurance coverage is also a concern.
- There is a high chance of getting retrenched after the end of 1 year contract.
- Due to these reasons, they don’t want to join Infosys.
In case of Indian employees in US, there is a high chance of rotation back to offshore after 1 year.
In this article I used many assumptions based on data provided by Forbes. The real number of impacted employees according to Wall Street Journal is 2500 .
Whatever may be the numbers involved, the fact stands that Infosys cannot accommodate larger onsite pool of employees as all Indian companies usually have less than 10% as onsite to offshore ratio.
So in all scenario, this deal affects employees in US badly.
Verizon should ensure to help its employee who worked for decades and ensure their needs are taken care instead of taking money from their pocket before sending them out.