Bengaluru: A month after completing its biggest retrenchment exercise, Tata Consultancy Services Ltd (TCS) asked managers to classify roughly 5% of employees in the company’s lowest performance band during the latest appraisal cycle, according to an internal email reviewed by Mint and confirmed by an executive.
The move has triggered fresh anxiety inside India’s largest software exporter because many employees laid off in the recent 12,200-person workforce reduction were placed in the same band, according to executives familiar with the process.
“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 a business unit head in April.
According to three other executives, business unit heads classified about 3% of employees, or roughly 17,500 people, as underperformers. Top performers received salary hikes of about 6%, according to annual compensation letters sent on Sunday.
To be sure, IT companies like TCS, Infosys and HCL Technologies have been known to classify some employees as underperformers.
However, executives said the explicit instruction to meet a 5% Band D distribution marks a significant shift from earlier appraisal cycles, when low ratings were not tied to a formal quota.
“Until last year, it was understood that many employees would be placed in Band D, as in other IT companies,” one of the three executives cited earlier said on condition of anonymity. “But for HR to insist that we have to put 5% of employees as underperformers is a first.”
The executive said the rise of AI and pricing pressure on contracts have led the company to focus on maintaining profitability.
“Keeping a check on staff costs is one of the main levers available,” the executive said, adding that it was not easy for business unit heads to assign employees to the lowest band.
An email sent to TCS on 12 May seeking comment went unanswered till press time.
Impact of Band D
A second executive, who received a D rating last year, said placement in Band D carries immediate financial and career consequences, including cuts in salary and variable pay.
“We are also released from the project and have to find another one. We are generally placed on a two-month performance improvement plan, during which we must demonstrate our competency. If the employee cannot, they are shown the door,” said the executive. “Now if employees are put in the D-band, their fear of another round of retrenchment might increase.”
A third executive, who has been marked as an under-performer this year, said, “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.”
Notably, last July, TCS said it would let go of 2% of its workforce — about 12,200 employees — an exercise it completed in March 2026. TCS ended FY26 with 584,519 employees, down from 607,979 a year earlier.
Workforce-related churn has also increased at senior levels. Mint reported on 6 April that 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.
AI pressure
Analysts said the trend reflects broader structural pressure as automation reshapes demand and IT services companies move towards outcome-based billing models.
“There are fewer human requirements due to the rise of automation tools,” said Amit Chandra, vice-president at HDFC Securities. “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.”
Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities, said IT companies don’t need as many people as in the past because they are increasingly billed based on outcomes rather than on hours spent by their employees.
“This probably explains why they are looking to do away with excess employees and save costs, thereby protecting their margins,” Nayak said.
TCS 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. Revenue of its India business — which accounted for 6% of its FY26 revenue — declined 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.
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.
Among other IT firms, Cognizant Technology Solutions Corp announced a restructuring program on 29 April to increase AI investments and workforce upskilling.
Investor sentiment has also weakened across the sector. TCS shares are down 29.7% on the BSE since the start of the year. Between 1 January and 17 May, shares of Infosys and HCL Technologies fell 30.2% and 30.6%, respectively, while shares of Wipro Ltd and Tech Mahindra Ltd fell 28% and 13.4%, respectively. The BSE Sensex fell 12% in this time.