Four on Satyam board to quit post open offer

Written by BV Mahalalakshmi | Rachana Khanzode | Surabhi Agarwal | Hyderabad, Mumbai, New Delhi | Updated: Jun 13 2009, 07:05am hrs
Satyam cost cutting
Four out of six members of the government-appointed board of Satyam Computer Services are likely to move out after Tech Mahindra's open offer for an additional 20% in the Hyderabad-based IT firm. Kiran Karnik, board member at Satyam, told FE, We have had discussions and the government wants one or two of us to stay back. But the rest will be moving out after the open offer.

We are not leaving immediately mid way during the open offer. However, most of our job is done and once the open offer is over in a few weeks, we may move out, Karnik added.

Karnik had earlier also made public his decision to move out of the board. However, there was no clarity if other members would stay back or not. The government-appointed board was formed when disgraced founder and former chairman of Satyam B Ramalinga Raju admitted to fraud worth Rs 7,000 crore in January this year and the entire board of Satyam was dissolved. HDFC chairman Deepak Parekh, Nasscom ex-president Kiran Karnik, Sebi former member C Achuthan, chief mentor of CII Tarun Das, former executive director of LIC S B Mainak and member of ICAI T N Manoharan now constitute the board.

Meanwhile, after admitting on Thursday that it is burdened with the onerous responsibility of lowering costs as several client exits have caused significant revenue loss for the company since the past few months, Satyam is looking at saving Rs 500 crore by consolidating its offices across the country along with putting 7,000 to 10,000 employees in the virtual pool programme (VPP).

According to sources in the company, Satyam will save Rs 100 crore in the current fiscal by consolidation of infrastructure through closure of leased buildings, which will also result in savings on technology spends. The company will save over Rs 400 crore through VPP announced on Thursday.

The company has already initiated cancellation of lease agreements for its offices in Hyderabad, Chennai, Bangalore and Gurgaon. In south, Satyam has proposed to close about nine offices four in Hyderabad out of 10 with over 15,000 associates, three in Bangalore and two in Chennai.

Moreover, the VPP will also free up considerable office space, as around 7,500-10,000 employees will be placed in this programme. As per the announcement, the company will pay only the basic salary along with provident fund and medical insurance to employees placed in the virtual pool which is for staff members who have not been on billed projects for three months or more. According to sources, the basic component is 35-40% of the total salary of Satyam employees with allowances making up for the rest. Also, the company is learnt to have sent letters to 7,500 employees on Friday who have been short-listed for the VPP.

In a letter to his associates, Satyams CEO A S Murty said the excess staff will be retained albeit for a defined period of time (four-six months). During this period, Satyam will provide help to the employees with outplacement. However, employees will be recalled only if business demands.

For any IT company, employee cost is around 60% of revenues. In the case of Satyam, employee cost accounted for 65.8% of revenues during the quarter ending December 31, 2008.