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Losing employees to competitors and software and BPO firms is common in channels; but now partners are increasingly finding their employees poached by their own vendors and distributors
The term 'employee poaching' can be defined as an act of enticing key employees to move from one firm to a competitor. It has emerged as the biggest HR challenge for enterprises, both big and small, across all industry verticals.
In the recent times, the aviation sector has been the worst hit, and state-owned airlines have lost several of their in-flight crew and ground staff to the new airlines. Retail is likely to emerge as the next hotspot for poaching, as large players enter the fray and roll out their stores.
The IT industry has traditionally been a happy hunting ground for poachers, for obvious reasons. Attrition rates of software and BPO companies have always been steep compared to the rest of the industries.
In 2008, the top five software export firms are expected to hire 95,000 employees. With the domestic IT industry also on an upswing, skill-shortage (and subsequently, poaching) will assume larger proportions.
The channels' plight
The plight of channels is pitiable. Channels already suffer from high attrition–they lose a large chunk of trained manpower to large and reputed software and BPO firms and system integrators; and competitors. To a large extent they have become used to it.
However, what they can't get used to is the increasing levels of poaching by their own vendors and distributors. Although the number of employees lost to them is still a small percentage of the overall attrition rates in channels, the frequency of such incidences have increased over the past 2-3 years, which is disconcerting.
"Employee attrition is part of every manpower-intensive business. We have attrition rates as high as 20 percent; a large number are lost to software firms and competing solution providers. But what is inexplicable is losing your certified employees to the very same vendors and distributors you do business with. It's not only a breach of trust and but also an unfair trade practice," says Prabhakar Kini , Managing Director of the Bangalore-based Kinfotech Ltd, which lost four of its mid-level certified employees to distributors and vendors last year.
Nitin Shah, Managing Director, Allied Digital, is aggrieved too. "We're squeezed between our upstream partners–vendors and distributors– and downstream customers. Poaching by peers is acceptable, as it's a matter of losing some [employees] and gaining some. But such an act by your authorised vendor really hurts and amounts to breach of trust," says Shah, who lost a senior product manager to one of his principals last year.
Similar sentiments are echoed by several partners. Bangalore-based Login Infotech claims to have lost 20 of its employees to both vendors and distributors over the past two years. "Poaching by vendors and distributors has become rampant in the past two years. Of the 20 people we lost, 10 were certified mid-level sales and technical executives, while the rest were from our telemarketing team," says CEO Sanjay Srivastava.
Another Bangalore-based company, Apsis Technologies, has had its share of such experiences. "Recently, our senior product manager was poached by our key principal. Upon protesting vehemently, the vendor promised never to do it again. But the damage was already done," says managing director L Madhu.
Madhu regards distributors as a bigger menace when it comes to poaching. "Leave alone my senior staff, they have been targeting my delivery boys and sales coordinators by offering 50 percent salary hikes," he fumes.
Saket Kapur, Managing Director of the Delhi-based Green Vision, feels that the habit of poaching is a vicious circle. "It's the big-fish-eat-small syndrome. Vendors poach from system integrators and distributors, and in turn they poach from us. It's easy for them to poach as they interact with our employees on a regular basis and have all information, including their salary, performance, etc," he says.
Only six months ago, Green Vision lost a product manager to Iomega, its key principal. "No guesses who they hired; it was the same person handling their products. We took the matter up with the country manager and also escalated to their Singapore headquarters. But they thought they had done nothing wrong and hence we took the moral decision to terminate our contract with the company," says Kapur.
Bangalore-based Eurotech Tech-nologies lost six of its mid-level sales and technical executives to vendors and distributors last year. Managing Director Anuj Gupta sounds anguished: "It's very unfair. In all instances, when our vendors were confronted, they said that our employees had approached them. If so, they should at least have had the courtesy of informing us before hiring our key managers."
Agrees Navin Kapur, Managing Director, Iris Unified Learning. "They are so desperate to take our people that they don't even ask them to provide relieving letters or No Objection Certificates (NOCs)," he says, emphasising that none of the vendors have poached his employees. "Some of our employees were propositioned by our key vendors, but when we took up the matter with their bosses, they assured us it won't happen again and they have kept their word. However, distributors continue to ruthlessly poach our staff."
By hook or by crook
What's even more rattling for channels are the sly tactics vendors employ while poaching employees. Narrates Eurotech's Anuj Jain, "In one instance, my senior manager was hired, made to sit home for two months, and then taken onboard by the vendor. When questioned, the vendor said that they hired the employee much after he had resigned from our employment."
Login Infotech's Srivastava seconds Jain, "This practice is common among vendors. They believe this way they cannot be implicated of poaching partners' employees." Indeed, one of Login Infotech's sales managers was hired by the channel fulfilment agency of a software vendor. "When we protested, the vendor told us that they had no control over who their agency hires or fires. Two months later, the manager was taken on the payrolls of the vendor," says Srivastava.
Saket Kapur shares an interesting episode which happened recently. "A senior sales person left our company on personal grounds saying he wanted to work closer to his family, in Rajasthan. We relieved him immediately, waiving his notice period. A fortnight later we found out he had joined the Jaipur office of the same vendor whose products he managed in our company. A month later he was posted back in Delhi!"
Mahesh Shah, CEO of the Kolkata-based Pecon Infotech, says some of his service engineers were poached by Wipro and posted at different locations in order to avoid any finger-pointing. "When we confronted our account manager at Wipro, he feigned ignorance and put the entire blame on his HR department."
B Anand Rao, Managing Director of the Bangalore-based Par Data Systems, claims he has fallen prey to the rivalry between two distributors. "If I am giving good business to one distributor for a certain brand, the other distributor will poach my product manager for that particular brand just to cripple my business," he explains, hinting at having lost a couple of employees due to such rivalry.
The impact on business
Channel partners feel that more than the business, it's the trust between the vendor and partner that's the biggest casualty. "That's one of the reasons we terminated our contract with Iomega" says Green Vision's Kapur.
Pecon's Mahesh Shah highlights the business impact as well. "As we focus on government tenders, if a senior manager in charge of a particular tender quits at a critical time, you lose that tender and this could cost a couple of crore in revenues. Getting another employee and training him can easily take 5-6 months. It slows down your business," he says.
"Everyone wants a high-performing employee who can deliver from day one. Hence vendors always target the smartest and most experienced people in your organisation," says L Madhu.
According to Anuj Jain, it also adds to the salary burden of the company. "Many times you retain a good employee by hiking his salary to match the vendor's offer. By doing so you also have to increase salaries of other employees working at the same level."
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Few brave men
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| While a large number of channel partners are aggrieved by talent poaching by vendors and distributors, only a few have shown the courage to hold the big brothers accountable
Delhi-based Green Vision Technologies is one such company who took the courageous step of terminating the contract with the vendor that poached one of its senior managers.
"Six months back, Iomega poached a senior sales manager who was heading their product business within our company. The sales manager left our company on personal grounds and remerged at Iomega two months later," says Saket Kapur, MD, Green Vision.
Kapur took up the matter with the country manager of the company who reasoned that the employee was hired only after he quit the company.
Not the one to give up easily, Kapur approached the top bosses of Iomega sitting in Singapore. But when even they refused to intervene, Green Vision terminated its contract with Iomega.
"We were one of the distributors for Iomega and hence it did have a noticeable impact on our revenues. However, I was clear that I didn't want to deal with a company that was so unethical to poach its distributor's employees," says Kapur.
Kinfotech too had a similar episode with one of the distributors it regularly bought from. "A distributor poached one of my senior category managers and upon taking up the issue with the company's management they feigned ignorance. They said they didn't know the person worked with us," says Kini Prabhakar, MD.
In protest, Kinfotech stopped buying from the distributor. "We took a strong stance that until they didn't aplogise for their action and assured us not to do it again, we will not do business with them ever," Kini.
Six month later the distributor relented and sent a written apology with an assurance never to do it.
The channel needs more such brave men.
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Sign that contract!
Non-poaching or non-solicitation contracts between vendors and their channels; and channels and customers, are a common practice in most industries. In IT channels, however, not even large multinational vendors follow the practice.
"It's not a standard industry practice. Also partners are scared to demand such contracts with their vendors as they fear retaliation. If you insist, your vendor could drop you as a partner. It will make little difference to their business, but will kill yours," says Sanjay Srivastava.
Interestingly, even the standard practice of signing a non-compete contract with employees is uncommon among channel companies. "We don't do contracts with our employees as they don't stand the test of law," says Anand Rao.
Even those who have such contracts in place are not convinced of their effectiveness. "Our contract mandates employees to serve a notice period. Despite this, employees continue to leave in a silent mode without serving their notice period. In a few cases we have sent legal notices to such employees, but nothing has come out of it," says Sanjay Srivastava.
Says Nitin Shah, "We have a standard bond for all employees with premier certifications. The bond mandates employees to reimburse the cost incurred on certification and material damages in case of a premature exit. Despite this there are blatant violations. We have sent legal notices to several breaching employees, but they haven't even responded to them."
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Landmark Judgements on poaching
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| Although not specific to the IT industry there have been some landmark judgements on the issue of employee poaching. Here are a few of them:
Pepsi Foods Ltd and Others versus Bharat Coca-Cola Holdings Pvt Ltd & Others [1999 (50) DRJ 656]
Pepsi was refused injunction to restrain its employees from joining Coke. The rights of an employee arising out of an employment contract have been elaborately detailed in the judgment.
Jet Airways (I) Ltd versus Mr. Jan Peter Ravi Karnik [2000 (4) Bom CR 487]
Jet Airways was refused injunction to restrain its pilots to whom it imparted specialized flying skills/ training from joining Sahara. It was held that the training, skills, knowledge acquired by pilots from Jet Airways was their own property and they were free to use it to their advantage for taking up employment with Sahara.
Wipro Limited versus Beckman Coulter International SA [1996 OMP 463/ 2005]
Non-solicitation agreement in vendor/ agency relationships were held valid and enforceable. It was held that employees of either company could not be 'poached' by the other company for a specified period of time.
Gujarat Bottling Company versus
Coca-Cola & Others [1995 (5) SCC 545]
Considered landmark judgment of the Apex Court on the issue of enforceability of negative covenants in agreements, including employment agreements where the basic principles for framing employment and non-solicitation contracts have been laid out.
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Time for collective action
Channels believe that contractual agreements, either with the employee or vendors, serve little purpose. "We are here to do business. Who has the time and money to fight protracted legal cases with employees and vendors? Besides, you don't want to make enemies of your vendors. The problem can only be tackled by collective action," says Anand Rao.
Mahesh Shah expresses similar sentiments. "We have discussed the matter several times but have been unable to build a consensus. Partners are reluctant to report such events, fearing vendor retaliation. Associations need to take a more proactive and cohesive approach."
As the secretary of Progressive Channels Association of Information Technology (PCAIT), Saket Kapur has taken up the matter with vendors on several occasions but has yet to get a satisfactory response. "At PCAIT we have a committee specially for managing vendor relations. The matter has been raised with several vendors, but in most cases we have drawn a blank," he says.
Navin Kapur of Iris Unified Learning feels that vendors too need to be a part of such collective action. "What vendors can do is formulate a code among key partners not to poach from each other. System integrators also need to be included," he says.
Satish Doshi, Managing Director, Sampoorna People, believes that channels need to use a mix of both collective action and contractual agreements to address the poaching issue. "No single partner would want to take on the mighty vendor. The matter has to be resolved collectively. Jointly, partners can demand vendors to sign non-poaching agreements. Make it a standard practice, as is the case with other industries. Also, signing of non-compete contract with employees should become a practice. They may not be effective legally, but they do act as a strong psychological barrier," says Doshi.
Employee poaching by vendors and distributors is definitely a matter of grave concern, and merits urgent attention from channel companies and associations.
- Dhaval Valia
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