Cognizant to trim senior level executives to make space for juniors to grow

Nasdaq-listed IT services firm Cognizant is likely to reduce its headcount further, especially at the top end of the employee pyramid in coming quarters after reporting the highest level of attrition among the software biggies for the second quarter ended June.

In an interview to a business newspaper, Cognizant's president Raj Mehta said that around $35 million would be provided during the rest of this calendar year towards severance costs.

The IT major on Thursday reported a decline in its net profit by 12 per cent sequentially to $456 million in the second quarter ended June, 2018 owing to forex loss.

However, its operating margin improved significantly with 200 basis points rise year-on-year and 170 basis points sequentially at 22 per cent. The company attributed higher level of utilization and optimization of employee mix as the key factors driving the margin improvement. Cognizant's share price fell around 6 per cent in Nasdaq post its earnings announcement on Thursday.        

Giving the rationale behind trimming of senior-level executives, the IT major said this would create room for juniors to grow.

Cognizant's attrition level, which was the highest in the industry, stood at 22 per cent by the end of June quarter as compared to 20.6 per cent of Infosys. During this period, Wipro's overall attrition level stood at 17 per cent, while it was lowest for Tata Consultancy Services (TCS) at 10.9 per cent.  

Though the New Jersey-based company said the reduction in headcount was a global exercise and not focused on a particular region, the move is likely to majorly impact the Indian workforce.

In 2017 alone, Cognizant's employee count in India declined by almost 8,000, while global headcount was pruned by 4,000 during this period. The company reported an addition of 7,500 employees on a sequential basis to take its total headcount to 268,900 by the end of June quarter.

The president of the IT firm also said that part of the employee attrition was involuntary in nature. Cognizant, on earlier occasions, had offered voluntary retirement scheme to nearly 400 senior executives.

Cognizant reported a revenue growth of 9.2 per cent on year-on-year basis, which trailed that of its bigger peer TCS which reported 10 per cent rise in dollar revenue in June quarter.

Analysts also pointed out that tepid growth in company's biggest vertical, financial services, remained a major worry for the company.

In the June quarter, financial services, which accounts for 37 per cent of the firm's total revenue, managed to grow only 0.5 per cent in sequential term and 4.5 per cent on year-on-year basis.