Infosys Ltd’s promoters continue to be unhappy with some decisions made by the board of India’s second-largest software services company. A majority of the promoters did not vote for a resolution seeking a salary increase for chief operating officer UB Pravin Rao.
According to filings by Infosys with stock exchanges, only 24% of promoter votes were cast in favour of the resolution seeking a 35% rise in Rao’s compensation to Rs 12.5 crore. The remaining abstained. It mirrored the promoters’ voting 12 months ago on a resolution seeking a two-year extension and a revised compensation of $11 million for chief executive Vishal Sikka.
The latest show of promoter disenchantment, according to people familiar with the development, suggests that the truce reached between the founders and the company’s board after an open confrontation in February may only have resulted in an uneasy and temporary calm.
The resolution was one of three Infosys sought to pass through electronic voting or postal ballots by 31 March. The remaining two resolutions, including an amendment to its articles of association, allowing Infosys to consider a share buyback, and appointment of DN Prahlad as independent director received overwhelming approval from promoters and other shareholders.
Infosys founder NR Narayana Murthy clarified that the decision of some of the founders not to vote in favour of the proposed salary increase for Rao was because of their belief in compassionate capitalism.
“This abstention has nothing to do with Pravin,” Murthy said in an e-mailed response to a questionnaire from Mint. “I have lots of affection for Pravin. Let me state you the facts. I believe in striving towards reducing differences in compensation and equity in a corporation. I have always felt that every senior management person of an Indian corporation has to show self-restraint in his or her compensation and perquisites. This is necessary if we have to make compassionate capitalism acceptable to a majority of Indians who are poor. Without compassionate capitalism, this country cannot create jobs and solve the problem of poverty. Further, giving nearly 60% to 70% increase in compensation for a top level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6% to 8% is, in my opinion, not proper.”
“Finally, given the current poor governance standards at Infosys, let us also remember that these targets for variable pay may not be adhered to if the board wants to favour a top management person,” said Murthy.
Still, the proposal to increase Rao’s salary found majority shareholder support as 75% of institutional investors voted in favour of the proposal, even though 67% of non-institutional investors voted against. Institutional investors, which include foreign institutional investors and insurance companies, hold 59% of shares in Infosys while non-institutional investors, which include retail shareholders, hold 28.1%. Five of the seven original co-founders, Murthy, Nandan Nilekani, S.D. Shibulal, Kris Gopalakrishnan and K. Dinesh are categorized as promoters of the company, and the founders together hold a 12.75% stake. None of the founders are on the board of Infosys.
“No previous resolution in the history of the company has received such a low approval,” said Murthy.
In April last year, Nilekani and Sudha Murthy, Narayana Murthy’s wife and chairperson of the Infosys Foundation in India, approved Sikka’s reappointment until 2021 and a higher salary, as other founders abstained. A similar voting result this time suggests that both Nilekani and Sudha Murthy voted in favour of Rao, too.
Gopalakrishnan declined to offer a comment while emails sent to Nilekani and other founders went unanswered. An Infosys spokesperson declined to comment on how the five promoters voted.
“More than 50% of the public and small institutions voting against the increase in COO’s salary is unprecedented and as far as I recall never happened in the history of Infosys,” said Venkatraman Balakrishnan, a former chief financial officier at Infosys. “It is clearly a vote of no-confidence on the practices followed by the current board to excessively compensate senior management without any direct linkage to shareholder wealth creation. The board should listen to the founders, increase transparency, improve corporate governance, restructure the board and lastly announce a large buyback to protect shareholders’ interests.”