BENGALURU: A month after Tata Consultancy Services Ltd (TCS) completed its largest retrenchment exercise, laying off about 2% of its workforce, the company asked managers during its latest appraisal cycle to place about 5% of its 584,519 employees in Band D, the lowest performance category, according to an internal email reviewed by Mint and independently confirmed by an executive.
“Please review critically and share the list of associates who can be considered for Band D, thereby meeting the agreed 5% distribution,” said an email from a TCS HR executive to one of the business unit heads of the company in April.
Business unit heads classified about 3% of employees, about 17,500 people, as underperformers, according to three other executives.
The ratings have stoked fresh concerns among employees across India’s largest software services firm, especially after many of the 12,200 employees laid off in the recent retrenchment exercise were similarly rated.
Top performers, meanwhile, received hikes of about 6%, according to annual salary increase letters sent to employees on Sunday.
An email sent to TCS on 12 May seeking comment went unanswered till press time.
Harder calibration
While TCS, like peers Infosys Ltd and has long classified some employees as underperformers, executives said the explicit 5% Band D distribution has heightened concerns.
“A couple of things stand out this time around. Until last year, it was understood that many employees would be placed in Band D, as in other IT companies. But for HR to insist that we have to put 5% of employees as underperformers is a first,” said one of the three executives cited earlier.
“Second, the rise of AI and pricing pressure on contracts has led the company to focus on maintaining profitability. Keeping a check on staff costs is one of the main levers available. Also, this thing is not easy for the BU heads to put a certain percentage of their team as underperformers,” the executive added.
Employees said placement in Band D carries immediate financial and career consequences, including lower variable pay, removal from projects and performance improvement plans.
“Getting the D band results in a salary cut as they cut our variable pay considerably. We are also released from the project and have to find another one. We are generally placed on a 2-month performance improvement plan, during which we must demonstrate our competency. If the employee cannot, they are shown the door,” said a second executive, who received a D rating last year.
“Plenty of employees who were sacked last year were those given the D-band rating,” said a third executive.
“Now if employees are put in the D-band, their fear of another round of retrenchment might increase,” added the second employee.
“I had rejected my band (D), after which the HR sent an email to my manager to set up a call with me to discuss the reasons. Nothing has happened and I am now searching for a new job before my salary is reduced and I’m told to leave,” said the third executive, who was marked as an under-performer this year.
In July last year, the company said it would let go of 2% of its workforce, or about 12,200 employees, an exercise it completed at the end of March this year. TCS ended FY26 with 584,519 employees, down from 607,979 a year earlier.
Workforce-related churn has also increased at senior levels. At least 300 of 1,800 senior executives left the company in the eight months through 31 March, representing at least 16% churn among senior ranks, the highest since the company went public in 2004, Mint reported on 6 April.
AI pressure
Analysts said the changes reflect broader structural pressure in the sector as automation reshapes demand and move towards outcome-based billing models.
“There are fewer human requirements due to the rise of automation tools. They are also looking to protect their margins and by giving the lowest ratings to employees, they might have to pay less to those employees,” said Amit Chandra, vice president, HDFC Securities.
“As IT services companies increasingly get billed based on outcomes rather than on hours spent by their employees, they don’t need as many people as they did in the past. This probably explains why they are looking to do away with excess employees and save costs, thereby protecting their margins,” said Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities.
ended FY26 with operating margins of 25%, up 70 basis points year-on-year, but reported its first-ever revenue decline since listing, with revenue falling 0.5% to $30.02 billion. Much of the decline was driven by weakness in its India business, where revenue fell 32%.
“The AI disruption narrative was in full force this quarter as a handful of larger clients delayed their spend plans, and/or delayed their decision-making in order to re-assess their technology roadmaps in light of the capabilities of the newest frontier AI models,” Jefferies analysts wrote in an 8 May note.
Other IT firms have so far managed the transition with relatively less strain, even as Cognizant Technology Solutions Corp has announced a restructuring programme involving at least 4,000 job cuts.
The pressures have mounted despite greater involvement from Tata Sons chairman N Chandrasekaran, who also chairs TCS. Last summer, TCS appointed Aarthi Subramanian as chief operating officer and Mangesh Sathe as chief strategy officer to support chief executive officer K Krithivasan.
Investor sentiment has also weakened across the sector. TCS shares are down 29.7% since the start of the year. Between 1 January and 17 May, shares of Infosys and HCL Technologies fell by 30.2% and 30.6%, respectively, while shares of Wipro Ltd and Tech Mahindra Ltd fell 28% and 13.4%, respectively.