At least 9 months' pay! Cognizant top execs get voluntary separation option

IT major expects process to be concluded by the end of the second quarter

Cognizant Technology Solutions has floated a voluntary separation option for its employees at the senior management level, at a time when the company is pushing for automation and digital technology and is in the process of trimming its workforce. 

The Nasdaq-listed US-based company, which has most of its India operations in Tamil Nadu, confirmed the development. Other information technology majors did not respond to calls and emails from Business Standard on whether they were also considering similar schemes.

Cognizant said the option had been offered to senior executives — from director level to senior vice-president. Sources in the company said that those who had annual salaries in excess of Rs 40 lakh might also be eligible for the option. A minimum of nine-month salary will be paid as compensation under the initiative, depending on the executive’s post. 

The IT firm said the move was related to its overall strategy to accelerate shift to digital and deliver high-quality, sustainable growth. The company will, however, continue to hire across all of its practices and is expanding facilities globally, ensuring that it has the “right expertise to help its clients”.

“As part of these initiatives, we are offering a voluntary separation incentive to some eligible leaders, representing a very small percentage of our total workforce,” said a company spokesperson.

Asked about the compensation, the spokesperson said, “We believe it provides a fair and positive experience for those choosing to leave.” He didn’t disclose any details.

The company wants the process to be concluded by the end of the second quarter, and is not expecting any disruption in its day-to-day operations or client commitments due to this.

Following the annual appraisal earlier this year, the company initiated efforts to reduce its manpower. The process could see about 2.5 per cent of its staff losing their jobs. The company had 260,200 employees at the end of December 2016.

Reacting to the latest development, Ryan Blanchard, analyst, professional services, Technology Business Research, Inc, said, “Cognizant related the decision to its efforts to accelerate its shift to digital, which to me says that they felt they needed some fresh minds at the upper management level. The company has seen some significant turmoil of late... Margins have been pressured and the outlook on profitability is darkening as we get closer to H-1B visa reforms. Cognizant is among the most frequent users.”

The company, which has received an agreement with activist investor Elliott Management earlier to boost its non-GAAP operating margins from 19.5 per cent in 2016 to 22 per cent by 2019 by streamlining costs, is improving operational efficiency and aggressively employing automation to optimise traditional services.

Elliott wanted a $2.5-billion buyback, dividend payouts and other operational changes. In tune with this, Cognizant announced it would return $3.4 billion to shareholders over the next two years through share repurchase and dividends. 

The company’s top executives including Chief Executive Officer Francisco D'Souza saw his performance bonus declining by 20 per cent in 2016, as the company slipped on targets and faced criticism from the investors over its business model.

The US-headquartered firm with a large offshore base grew its revenue 8.6 per cent to $13.49 billion in 2016, lower than its projection of 10-14 per cent.