Cognizant bows to investor pressure on costs: 10,000 likely to lose jobs

Analysts say the move is both soothing and disconcerting

       

The annual appraisal at Cognizant Technology Solutions this month came as a surprise to many. Not only was their performance under greater scrutiny, but at the end of the review process, as many as 10,000 employees are expected to be laid off.

Many of them will lose their job to automation. Like others in the industry, Cognizant, too, has been trying to reinvent itself and focus on high-end projects that require specialised skills as traditional offshore contracts shrink. The Nasdaq-listed solutions provider has 262,200 employees, and, according to sources in the company, up to 2.5 per cent could lose their job, although employees think the number could be higher.

Cognizant has been under pressure from investors to shore up margins. Investors want to see the company boost profitability, deliver growth and return cash to shareholders. Last month, Cognizant reached an agreement with activist investor Elliott Management, which holds four per cent stake, to boost its non-GAAP operating margins from 19.5 per cent in 2016 to 22 per cent by 2019 by streamlining costs, improving operational efficiency and aggressively employing automation to optimise traditional services.

Also read :Lakshmi Narayanan to move out of Cognizant board

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. While the company has in the past, too, used the share buyback platform, it will be paying shareholders dividends for the first time.

As part of this plan, the company expects to commence a $1.5-billion accelerated share repurchase in the first quarter of 2017-18, initiate a regular quarterly cash dividend of $0.15 per share commencing in the second quarter of 2017, and repurchase shares of $1.2 billion in the open market during 2017 and 2018. Beginning 2019, the company plans to return approximately 75 per cent of its US free cash flow on an ongoing basis to shareholders(read more).