IT services company Cognizant may up variable part of pay

Company charts a revamp plan with salary structure rejigs, cutting management layers and rethinking sales.

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The company has created a transformation office that is looking at six aspects, including talent.
BENGALURU: Cognizant may increase the variable pay component in the compensation structure of its employees, sources with knowledge of the matter told ET, as the IT services company moves to lower costs and possibly shore up margins.

The Teaneck, New Jersey-headquartered software services exporter is restructuring itself under new CEO Brian Humphries, which includes reducing management layers and rethinking its sales and business strategy. Reworking compensation structure is another measure in a roadmap that is aimed at making it ‘fit-for-growth’.

“Currently, variable pay is a smaller component of compensation, but the idea is to increase variable pay to actually reward contribution and growth. It could be 35% or more in mid-levels but it won’t be significantly higher for freshers, who are on a low base,” a source with knowledge of the deliberations told ET.


A second source said the discussions around change in compensation had only just begun and there was still no clarity on what proportion of an employee’s salary would turn into variable pay. Senior Cognizant executives have a higher variable component, but it is lower for rank-and-file employees.

“Aligning compensation to key strategic focus areas like digital is a critical enabler for us and this is a process we are being very deliberate about and spending significant time and effort working on,” a Cognizant spokesperson said.

“It seems the company is operating at about 90% fixed cost compensation structure now (10% variable). This will likely be changed to a more variable structure to align incentives for employees,” David Koning, an analyst with US brokerage Baird Equity Research, said in a note last week. The note was based on a meeting the brokerage had with Cognizant’s chief financial officer Karen McLoughlin, the analyst said.
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Humphries, whose is undertaking the overhaul, said earlier that changes to compensation were being considered. He has said that the company was still underperforming on revenue growth and profitability.

The company has created a transformation office that is looking at six aspects, including talent. The talent aspect will include compensation structure, along with attracting and retaining talent and skills, Humphries said in a post-earnings press conference last week.
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