Hurt by a subdued demand environment, Cognizant has delayed salary hikes for employees by three months. While annual increments are typically given July, these will now be handed out in October. The Chennai-based IT major added just 1,000 employees in the January-March quarter; that’s about a fourth the number of net hires added in previous quarters. Promotions will be delayed as well. An email by Cognizant chief people officer Jim Lennox said those employees up to the level of vice-president may have to wait till October to see any promotions, if any. The company has a total employee strength of 2,61,200. Cognizant’s net profit in 2016 fell 4.3% to $1.55 billion, even as the BFSI and healthcare verticals slowed down.
The company’s revenue guidance for 2017 indicates it will only grow at 8-10%, or the same pace as it did last year. However, Cognizant is hoping to be more profitable and is targeting an operating profit margin of 22% in 2019, up from the current level of 18.9%. With the $150-billion Indian IT industry staring at single-digit growth, even as automation eats away low-end jobs, other players too might be compelled to defer pay hikes, say analysts.
The Nasdaq-listed Cognizant has decided to pay its senior managers a lump-sum amount in October instead of monthly increases. Manager-level employees and below have been promised a hike similar to last year, which was in high single digits. Lennox’s email said, “Year 2017 has seen a good start and while macro environment factors cannot be controlled, what can be controlled are their executions against macro shifts, driving value to clients and differentiating themselves in the marketplace.”
Cognizant generally gives salary hikes in July while bonuses are paid earlier in April. The company has also indicated that it has reduced the variable payout of the employees in the range of of 95%, 75% and 50% for 2017, depending on their category. This is markedly different from the days when it paid variable pay in excess of 100% and in some years even going beyond 200%.
Earlier there were reports that the company was planning to lay off around 6,000 of its employees. Besides, the IT firm has announced a voluntary separation package for those employees at the director to senior vice-president level, though the company clarified that they constituted a very small percentage of its total workforce.
Cognizant reported revenue of $13.49 billion for 2016 with an annual growth of 8.6%, with a net profit of $1.55 billion. For the current year, it has provided a revenue growth guidance in the range of 8-10%. Salary increments for IT employees in general have fallen to single digits, from 15-20% during better days. Meanwhile, some IT firms have indicated they will be more strict with annual salary increases. Infosys, for instance, has hinted that under-performers might not get hikes as part of its revised strategy to differentiate between the performers and the rest.