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Abhinav Singh
Abhinav Singh


Employee rationalisation in IT the new norm?

computer-keyboard-ap (File) Representational image | Agencies

With many senior employees opting for the Voluntary Separation Program (VSP) announced by the IT services giant Cognizant it is becoming quite evident that with increasing market and margin pressure many IT services companies will resort to employee rationalization in the near future. Several media reports stated that around 400 people have opted for the program by Cognizant.

However, some experts say that the numbers may be more than 1,000 people as the program is global and many overseas employees employed in the US and Europe have also opted for it. Going by this trend many IT companies may give employees an option to leave the company through a retirement scheme or they may phase out unproductive people. Many people may be re-skilled in order to meet the requirements of the company.

"Though there is this usual churn of employees every year in IT companies, their posts are not been filled or they are not been replaced by new people. These IT companies are now utilising their employees fully and trying to achieve more productivity out of them. Though the situation is not very grave in companies such as Cognizant, as the scheme was not forced on any employee and they were given around 6 to 9 months of salary as part of the scheme, IT companies are expected to resort to cost-saving schemes and will try to cut the excess flab in the near future,” Amit Chandra, IT Analyst, at the Mumbai based HDFC Securities told THE WEEK.

He further points out that there could be some pressure for such a scheme from the Hedge Fund Elliott Management which has around 4 per cent stake in Cognizant as they had released a letter stating the steps through which the company could increase its share value. “In the US, a shareholder's viewpoint is taken very seriously and this retirement scheme may probably be a result of that letter,”added Chandra.

Experts such as Alok Shende of the Mumbai based Ascentius Consulting feel that it is very much clear from such as scheme by Cognizant that the company can live without many such employees who opt for retirement. “There is market pressure all around and even some companies such as Tech Mahindra have announced 10-20 per cent cut in their senior management salary packages. However we will need to wait and watch over the next two to three quarters for the true picture to emerge and if other companies are also bringing out such similar schemes,” said Shende.

Experts such as Kris Lakshmikanth, the founder of Head Hunters India Limited, feels that one of the major aims of Cognizant is reduce costs by introducing such retirement schemes. “Many of the senior level people have opted for this scheme. What I hear from the market is that this scheme was open in May this year and the employees were given limited time to opt for it during that period. Though this scheme was not forced on people, it was very much clear that anything could happen to the people who had not opted for it. Cognizant is a company which was never known to sack or remove people, as it has always been a board-run company. However after the Hedge Fund Elliott Management purchased its shares, comparisons were made with other IT companies such as TCS and Infosys and there was more pressure to perform,” said Lakshmikanth.

When contacted by THE WEEK, the Cognizant spokesperson, in a statement, said that the company had the VSP as part of a plan to accelerate its shift to digital, and hence had taken this step to ensure that its workforce is appropriately aligned to deliver sustained, high-quality growth. The company spokesperson also said that they had not disclosed the details of the incentives they were giving as part of this scheme in May but believed that it provided a fair and positive experience for those choosing to leave. 

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