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.
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 a 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.
“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, CEO, Everest Group.