400 senior Cognizant employees accept voluntary separation package

Information technology (IT) services firm Cognizant Technology Solutions said its 400 senior employees have accepted a voluntary separation package (VSP), the move will help the company save nearly $60 million this year.

The Nasdaq-listed company said a voluntary separation programme was launched in the second quarter (Q) of 2017 (sometime in May) in a move to reduce cost and have better utilisation as the IT services industry is seeing a slowdown. Employees, both in the United States (US) and India, were offered nine months’ salary as severance package as part of this programme. 

Cognizant, for the first time in the recent past, reported a net reduction of 4,400 people in Q2 joining firms such as Tata Consultancy Services (TCS), Infosys and Tech Mahindra (TechM), who have seen negative net hiring amid automation and slower growth. 

“In Q2, we took some actions that will improve our cost structure and operating margins while allowing us to continue to invest in the business for growth. These actions resulted in approximately $39 million of charges related to the realignment programme, primarily from severance cost, including those associated with the voluntary separation programme that was initiated and concluded in the second quarter,” Karen McLoughlin, chief financial officer, Cognizant, told analysts in an earnings call, adding, “of the $39 million of realignment charges, $35 million was for the roughly 400 associates who accepted our voluntary separation package. We expect approximately $60 million of annualised savings as a result of the VSP. 

Out of the company’s 2,56,800 employees, the majority are based out of India and therefore a big chunk of the 400 odd associates are Indian employees. 

McLoughlin added that Cognizant might incur additional cost “related to advisory fees, severance, lease termination, and facility consolidation costs” and the company would remain “committed” to its target of 22 per cent — without generally accepted accounting principles (GAAP) — operating margin in 2019. 

Cognizant claimed that it has made good headway in Q2 driving higher utilisation through measures such as “slowing the pace of hiring”, “resource alignment with reskilling”. “These adjustments are structural changes that will help improve our profitability through greater operational efficiency while continuing to provide sufficient resources to support the growth of the business.”

Employees at Indian peers of Cognizant such as TCS, Infosys, Wipro, TechM have experienced challenging times and often loss of jobs as these companies focus on digital transformation. Industry analysts say now it is tougher for software engineers to stay on the bench or out of a project for more than two months in many such IT firms.