Cognizant Technology Solutions

BENGALURU: Cognizant Technology Solutions said 400 of its senior executives have accepted the voluntary separation programme (akin to government's VRS ) it initiated a few months ago, which it expects to result in annual cost savings of about $60 million.

The company initiated the programme in May, offering up to nine months of salary to top-level executives in the US and India. The move is part of the company's plan to improve margins and employee utilization in a changing IT climate that has been under pressure due to automation and lower revenue growth and margins from its legacy business.

In the second quarter, we took actions to improve cost structure and operating margins, while allowing us to continue to invest in the business for growth. These actions resulted in $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,“ chief financial officer (CFO) Karen McLoughlin said in a post-earnings analyst call last week.

It was not clear how many Indian executives accepted the company's offer. Considering that more than 70% of Cognizant's workforce is based in this country , the numbers would be high.

The company said of the $39 million of realignment charges, $35 million was for the associates who accepted its separation plan. It expects to incur additional cost related to advisory fees, severance, lease termination, and facility consolidation costs in the remaining part of the year.

McLoughlin said in February that the company aimed to improve cost through optimization, intelligent sourcing, simplifying business unit overhead structure, and leveraging corporate function spend to boost operating margin, which is significantly below that of its Indian rivals TCS and Infosys. For the first time, Cognizant reported a drop of 4,400 in its headcount, pushing its employee strength to 256,800 at the end of June from 261,200 at the end of March. The decline was attributed to performance evaluations and the voluntary separation program.

“While we will, of course, carefully manage headcount, we will continue to hire and invest in critical skills needed to grow our digital business, and we expect attrition to decline in the coming months,“ McLoughlin said.

