Major global tech companies are investing substantial amounts to downsize their workforce. Layoffs have become some of the most costly “cost-cutting” strategies in corporate history, involving severance packages and outplacement assistance.
According to experts, these actions are not random but are driven by factors such as brand management, investor trust, and the economic dynamics of restructuring in the AI era.
Shruti Swaroop, the founder of Embrace Consulting and co-founder of the International Inclusion Alliance, highlighted the rationale behind these generous severance payments.
She stated, “Severance serves as a relatively small yet visible upfront cost that helps mitigate legal risks, uphold the employer’s image and morale, and facilitate smoother transitions.”
INITIAL COSTS FOR LONG-TERM GAINS
In essence, companies prefer taking an immediate financial hit over prolonged expenses. Swaroop explained, “Short-term investments to achieve reduced future payroll expenses and an efficient cost framework may lead to better long-term financial outcomes.”
She emphasized that the motive behind these payouts is not compassion but risk management. Swaroop noted, “In the tech sector, where reputation plays a crucial role in recruitment and customer trust, companies often opt for more expensive exit packages to minimize reputational risks and negative publicity.”
This marks a global shift in how tech giants handle layoffs. Many are formalizing their severance protocols by incorporating outplacement services, visa assistance, and extended benefits to shape the narrative and safeguard their employer reputation.
“Although contractual obligations contribute to a portion of these costs, safeguarding the brand, mitigating legal risks, and operational pragmatism significantly drive the generous payouts across the industry,” Swaroop added.
This trend is also noticeable in India’s IT services sector. Tata Consultancy Services (TCS) recently announced 20,000 layoffs as part of its AI-focused workforce restructuring. The company anticipates a one-time financial impact of approximately Rs 1,135 crore to cover severance and related restructuring expenses.
The packages include a three-month notice period and severance pay ranging from six months to two years’ salary, based on tenure and position, along with early retirement options and support for mental health and redeployment.
IndiaToday.in reached out to TCS for insights into the rationale behind this decision, but the company did not respond before publication.
Meanwhile, Accenture has allocated over $2 billion globally for severance over the past three years, including $615 million in recent quarters alone, as part of a strategic move towards automation-centric service models.
CEO Julie Sweet stated that the company is eliminating roles not suitable for reskilling in line with evolving business requirements.
“Companies account for severance and restructuring expenses in the quarter when the action occurs. This may impact reported operating income and reduce quarterly