Rewards And Compensation In Tata Motors Accounting Essay


Tata Motors Limited is India's largest automobile company, with consolidated revenues of INR 1, 65,654 crores (USD 32.5 billion) in 2011-12. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. It is the world's fourth largest truck and bus manufacturer. The Tata Motors Group's over 55,000 employees are guided by the vision to be ''best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics.''

Established in 1945, Tata Motors' presence indeed cuts across the length and breadth of India. Over 7.5 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company's manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and Dharwad (Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat power trains. The company's dealership, sales, services and spare parts network comprises over 3,500 touch points.

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Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, Spain and South Africa. Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008. JLR supports two state of the art engineering and design facilities and three manufacturing plants (Solihull, Castle Bromwich & Halewood) in the UK. In 2004, Tata Motors acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has launched several new products in the Korean market, while also exporting these products to several international markets. Today two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano's presence is being expanded in other markets. In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets. In 2006, Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the company's pickup vehicles in Thailand.

We have chosen this organization because this is the leading company in automobile sector and most of our group members want to go in automobile sector.

Rewards and Compensation in Tata Motors:-

A detailed discussion with HR head Mrs. Monika Ahuja of Tata Motors (Lucknow branch), gave us the insight in the rewards and compensation system followed in the company. The appraisal model which is followed on annual basis starting from the month of April till March has been extremely effective for the employees of Tata Motors.

Half yearly appraisal system was started few years ago. This activity was started keeping in mind the dynamic behavior of the industry. With a half yearly appraisal system, the employee gets feedback twice a year, which gives him/her a chance to re-look at his/her approach of working. Necessary steps are also undertaken for employees who deviate from their goals. They have introduced a comprehensive system of quarterly appraisals' where an employee selects his/her own goals or Key Result Area (KRAs) every quarter and him/her self assesses his/her own performance against these parameters. At Spice jet while formally the process is annual, for several of the frontline employees, there are performance related quarterly payouts designed to reward them with incentives for their performance. This has resulted in quarterly assessments which are aligned overall to annual KRAs

Tata Motors have a midterm review for all those who have been performers, thereby creating an expectation amongst the employees of an increase in salary twice a year if they perform well. They used to have annual appraisals earlier, but then they felt that the incentives are not enough to motivation the sales department, which generates major revenues or the organization. They do give monetary increments and designation hikes, according to the performance. If the employee deserves both, they give him/her both the advantages otherwise at least one of them. Designation hikes are given annually. These are proportional to effort of the individual, team and the department. Designation changes are given keeping in mind the immense responsibility one has to shoulder in a high rank. Monetary increments are primarily incentives that are given either in cash or kind for example they give them travel package within India or outside. Also, they have an accumulating incentive scheme in which employees can accumulate incentives and get them annually with interest. 

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To meet the new demands of the business and to motivate the employees for higher performance, they have started linking a part of the salary increase to individual performance measures as variable pay. At present, between 6 to 8 percent of the compensation is variable pay, which they are planning to increase over a period of time. Executives are categorized in levels based on their performances in a relative ranking and based on outcome performance-linked pay is awarded.


Promotions based on Performance·

Productivity & Profit-linked Incentive Schemes·

Training including Long-term Term


New Appraisal System based on KRAs & Targets·

Review of Targets at regular Intervals·

People Development an important KRA

Career Design:-

Performance & Potential based Appraisals

Fast Track Option for High-performers

Promotions after Managers Vacancy based

Interviews for promotions above Managers

Selection of Supervisors:- Performance / Attendance / Discipline record- Written Test & Interview

Job Rotation - including Inter-functional

Goal-Setting Model

A goal setting program in an organization requires careful planning. As shown in the figure, the first three factors in goal setting process are establishing the goal, achieving goal commitment, and overcoming resistance to goal acceptance. Goals can be established in a variety of ways. Best way is to set by joint participation between the employee and the supervisor. This method often leads to employee commitment, a crucial ingredient in effective goal setting.

Goal Setting

S.M.A.R.T. Goals

Specific - precise and detailed

Measurable - with criteria for determining progress and success

Achievable - attainable and action-oriented

Realistic - relevant and aligned

Time-related - grounded within a time-frame

For this purpose, an online template is circulated in the organization. Superiors fill out that form keeping in view the performance of their subordinate over the year. This feedback becomes the basis of the promotion of the employees. Superior is responsible for categorizing the employees in four categories, namely - "A B C D"

This categorization is done both on the basis of performance and the goals they were given.

This whole system is commonly known as "90 degree appraisal system" also called "2 tiers".



The Company has an obligation towards gratuity, a defined benefit retirement plan cover ineligible employees. The plan provides for a lump sum payment to vested employees retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The Company makes annual contributions to gratuity fund established as trust. The Company accounts for the liability for gratuity benefits payable in future based on an independent actuarial valuation.


The Company has two superannuation plans, a defined benefit plan and a defined contribution plan. Employees who are members of the defined benefit superannuation plan are entitled to benefits depending on the years of service and salary drawn. The monthly pension benefits after retirement range from 0.75% to 2% of the annual basic salary for each year of service. The Company accounts for the liability for superannuation benefits payable in future under the plan based on an independent actuarial valuation. With effect from April 1, 2003, this plan was amended and benefits earned by covered employees have been protected as at March 31, 2003. Employees covered by this plan are prospectively entitled to benefits computed on a basis that ensures that the annual cost of providing the pension benefits would not exceed 15% of salary. The Company maintains a separate irrevocable trust for employees covered and entitled to benefits. The Company contributes up to 15% of the eligible employees' salary to the trust every year. The Company recognizes such contributions as an expense when incurred. The Company has no further obligation beyond this contribution.

Bhavishya Kalyan Yojana (BKY):

BKY is an unfunded defined benefit plan. The benefits of the plan accrue to an eligible employee at the time of death or permanent disablement, while in service, either as a result of an injury or as certified by the Company's Medical Board. The monthly payment to dependents of the deceased / disabled employee under the plan equals 50% of the salary drawn at the time of death or accident or a specified amount, whichever is higher. The Company accounts for the liability for BKY benefits payable in future based on an independent actuarial valuation.

Post-retirement Medicare Scheme:-

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Under this scheme, employees get medical benefits subject to certain limits of amount, periods after retirement and types of benefits, depending on their grade and location at the time of retirement. Employees separated from the Company as part of Early Separation Scheme, on medical grounds or due to permanent disablement are also covered under the scheme. The liability for post-retirement medical scheme is based on an independent actuarial valuation.

Provident Fund:-

The eligible employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which both employees and the Company make monthly contributions at a specified percentage of the covered employees' salary (currently 12% of employees' salary). The contributions as specified under the law are paid to the provident fund and pension fund set up as irrevocable trust by the Company or to respective Regional Provident Fund Commissioner and the Central Provident Fund under the State Pension scheme. The Company is generally liable for annual contributions and any shortfall in the fund assets based on the government specified minimum rates of return or pension and recognizes such contributions and shortfall, if any, as an expense in the year incurred.

Compensated absences:-

The Company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment. The liability is provided based on the number of days of unutilized leave at each balance sheet date on the basis of an independent actuarial valuation. Some other benefits advanced to the permanent employees are:

Allowances like Transport allowance, Education allowance, Sanitation allowance, Leave and travel allowance etc.

Annual Performance linked Payment

Free Medical facility for family

Company loans & advances

Analysis of Practice:-

After having discussion with HR head Mrs. Monika Ahuja, it was observed that there was rewards and compensation in the organization. It is an effective tool, since it is on continuous basis. Rewards and compensation in Tata Motors is satisfactory for its effective management and evaluation of staff. Rewards here are helping individuals to develop, improve organizational performance, and feed into business planning. Performance appraisals enable management in monitoring of standards, agreeing expectations and objectives, and delegation of responsibilities and tasks. Staff performance appraisals also establish individual training needs and enable organizational training needs analysis and planning. 90degrees appraisal system or review is being followed in Tata Motors i.e. feedback that comes from members of an employee's immediate work circle most often, 360-degree feedback will include direct feedback from an employee's subordinates, peers, and supervisor(s), as well as a self-evaluation. It can also include, in some cases, feedback from external sources, such as customers and suppliers or other interested stakeholders. The appraisal process is continuous here and encourages employee productivity with positive feedbacks.

Each company is pioneer in their own way of producing their products and equally compensating the employees. TATA Motors have fixed pay and more and more variable pay is introduced in every company. Nowadays we find that the variable component is quite large as compared to the fixed one. There are huge advantages due to variable pay compensation which are as follows:

Employee accountability

Motivation to perform more

Performance leading to rewards and recognition

High self motivation to perform however, critics has argued that such a pay structure would always put huge loads of pressure on the employees and hence an employee is looked merely as a machine with no emotions. Some of the disadvantages may be as follows:


Increased stress levels due to heavy expectations

Performance anxiety

Employee worn-out


The very concept of performance appraisal is marketed throughout the organization; people have accepted it and understood its importance to the organization.

It should be noted that the appraisal form for each job position should be different as each job has different knowledge and skill requirements. There should not be a common appraisal form for every job position in the organization.

The job and role expected from the employees should be decided well in advance and that too with the consensus with them.

Superior's response tend to be bias, which make employees unsatisfied. Thus, a better system can be installed.

Linking, Findings to the rewards can prove to be unfair. Transparency should be bought in appraisal system.

Ignores performance in terms of reaching goals, which can be disastrous for the organization.

Ideally in the present day scenario, appraisal should be done, taking the views of all the concerned parties who have some bearing on the employee. But, since a change in the system is required, it cannot be a drastic one. It ought to be gradual and a change in the mindset of both the employees and the head is required.