Cognizant Technology Solutions offers cash in lieu of options for senior management

CHENNAI: Cognizant Technology Solutions ( CTS) has asked high performing employees in certain bands to take cash instead of granting stock options as is the norm. In a communication sent to senior managers and associate directors who were rated EA (Exceeds All), the company has asked them to take cash instead of taking employee stock options citing reasons of the buyback program it has embarked upon.

Earlier this year, the US-headquartered company announced its plan to return $3.4 billion to its shareholders over the next two years through share repurchase and dividends. The company kicked off its $1.5 billion accelerated share repurchase program in the first-quarter of 2017 and has been handing out a quarterly dividend of $0.15 per share every quarter.

On completion of the accelerated share repurchase program, the company will buy back $1.2 billion shares between 2017-18.

The announcement of buyback along with a host of changes including a voluntary separation scheme for senior employees, changes in its board and formation of financial policy committee came after CTS saw pressure from activist investor Elliott Management which holds 4% stake last November. In February this year, CTS entered into a cooperation agreement with Elliott Management, committing to a strategic plan which includes expanding non-GAAP operating margins to 22%, in 2019.

Principal analyst and CEO of Constellation Research Ray Wang attrtibutes the latest move to Elliott having a greater say in operational matters within the company besides an attempt to lower the cost of the buyback. “This is an interesting development. I believe that it is driven by a need to support the stock price. The equity grants, and stock options dilute the outstanding equity. By converting these to cash they are able to accomplish a version of stock buyback, a strategy which they already agreed to with Elliot,” said Peter Bendor-Samuel, chief executive , Everest Group

“If this is there goal this strategy makes a lot of sense. They likely can get the stock at a discount to open market and they have plenty of cash to execute the strategy with. This is another indicator that Cognizant along with all the other leading Indian Information Technology companies have moved from growth stocks to mature stocks which drive their stock price up through returning cash to shareholders,” he added.