Infosys Ltd’s founders, led by NR Narayana Murthy, are unhappy with the board’s willingness to be flexible and generous with the variable pay of chief executive officer Vishal Sikka’s $11 million compensation, adding to their long list of grievances.
Mint learns this may well be the reason for what recent media reports have described as a souring of the relationship between the board and the founders. These reports, while mentioning some of the older grievances, ignored the immediate trigger.
Over the last three months, the founders have expressed their discomfort at suggestions made by some board members to offer a higher component of variable pay to Sikka, according to two executives familiar with the development.
Infosys’s non-executive chairman R Seshasayee is believed to be of the view that a decision on variable pay should take into consideration the fact that all outsourcing companies are struggling for growth. The thinking in the board is that it is all right to give a higher proportion of variable pay to Sikka even if Infosys fails to achieve the growth target for the year ending March.
An Infosys spokesperson said, “The Nominations and Remuneration Committee will evaluate the CEO’s variable compensation at the end of the fiscal year based on the company’s performance.”
Murthy did not respond to an email seeking comment.
“The founders are worried and have told Seshasayee and other members of the board that the employment contract (with Sikka) should be administered as per the way it has been structured,” said the first executive on condition of anonymity. “The board believes that since the entire industry has run into a problem, some flexibility with regards to variable pay can be made. This is something the founders are not very happy with.”
Last year, Infosys’s board rewarded Sikka’s with a higher compensation of $11 million a year, up from the earlier $7.08 million. Under this revised compensation agreement, $8 million of Sikka’s pay is based on Infosys’s performance this year. The board linked this higher annual compensation to the progress Infosys makes in achieving the target of becoming a $20 billion firm by March 2021.
Infosys has not disclosed the annual targets upon completion of which Sikka stands to get full variable salary. But as the management expects to report at-best 7.6% dollar revenue growth in the current fiscal, Infosys will end with $10.22 billion in revenue at the end of March 2017. This will mean Infosys has to double its revenue in the coming four years if it hopes to achieve its target.
Given the market scenario and the company’s performance, Mint learns that senior executives (those at the rank of associate vice-president and above) at Infosys stand to make less than 30% of the variable pay component of their total compensation. If Sikka is paid 30% of the $8 million in variable pay, or $2.4 million, he will earn $5.4 million this year. This is considerably less than his last year’s compensation of $7.45 million, higher than the promised $7.08 million, as Infosys reported industry-leading 9.1% dollar revenue growth.
Last month, the board of Infosys inducted director DN Prahlad, a relative of Infosys founder NR Narayana Murthy, into the nomination and remuneration committee (NRC) that oversees the nomination process and the incentives and pay offered to its senior-most executives.
“Some directors are of the view that it is fine to award a higher variable pay component,” said the first executive. “Sure, Prahlad was inducted in the NRC to make sure the contract is administered correctly, but it is a moot point if Prahlad alone can help in administering the contract because the board may override him.”
The Infosys board will take into account the performance of the outsourcing industry before deciding on the compensation, Seshasayee has previously said.
(The article has been published in arrangement with Livemint.com)