In an unprecedented move, the $1 billion Tata Consultancy Services, the largest software services player in India, has slashed incentive packages for its employees across the board.

The move comes at a time when the software major is making preparations for its initial public offering, which could be the biggest by far in the Indian technology sector.

Riding on performance-based parameters, the new incentive scheme has brought down effective compensation levels by 5-25 per cent. The reductions come into effect retrospectively from April 1, 2003.

TCS CEO S Ramadorai informed employees about the cuts through a webcast on Thursday. "There was no interaction with the employees. Ramadorai informed us that there will be a reduction in the variable component of salaries across the board because TCS had not performed well. No details were divulged about the cuts," a TCS employee said.

A TCS spokesperson, however, denied the cuts.

Atul Takle, vice-president of TCS, told Business Standard: "There has been no reduction in salary levels. Only the variable component of salary has been re-adjusted according to the performance of employees."

Performance at TCS is measured on a 1-5 scale. There are also six hierarchical levels, with assistant systems engineers forming the lowest rung.

So, if an assistant systems engineer got a 5 the last time round and maintained the rating this time, his salary is reduced by around Rs 700.

If his rating dropped, the deduction is larger. With the same rating, an information technology analyst stands to lose about Rs 1,500-2,000.

TCS is yet to give information on the new package to most of its employees. They came to know from salaries credited this month.

The revision in compensation packages will not affect the software major's ability to attract talent because TCS mostly depends on campus recruitment.

Entry-level salaries across the software industry have dropped by 10-15 per cent. TCS had a wage bill of about Rs 661 crore (Rs 6.61 billion) for the year ended March 31, 2001. Being a division of Tata Sons, an unlisted company, the latest figures of TCS were not available.