Infosys learns from Vishal Sikka spat, leaves no room for conflict in contract for new CEO
Infosys has incorporated four clauses, including those on salary, severance pay and non-compete rule, in CEO Salil Parekh’s contract to prevent a repeat of the Vishal Sikka or Rajiv Bansal incidents.business Updated: Mar 27, 2018 16:07 IST
Infosys Ltd, under chairman Nandan Nilekani, appears to have drawn lessons from the ugly public spat with its first non-founder chief executive to draw a contract with current CEO Salil Parekh that leaves little scope for potential disagreements or legal trouble.
This development underlines the new board’s decision to keep at bay all potential conflicting issues raised in the past, including a few tetchy issues in former CEO Vishal Sikka’s employment contract .
“Obviously now, Infosys has learnt from their experiences with the first non-founder CEO Vishal Sikka and have structured a tighter and transparent employment contract with Salil Parekh,” said Shriram Subramanian, managing director of proxy advisory firm InGovern Research Services.
Infosys declined to comment to emailed queries.
The firm, however, has still not spelt out the metrics based on which Parekh will be paid his variable pay.
Four features stand out in Parekh’s 14-page employment contract, which has not been made public and was reviewed by Mint.
First, Parekh is not assured of any minimum salary as part of his compensation structure. In contrast, Infosys had agreed to pay Sikka $10 million in annual compensation, irrespective of the firm’s performance. Parekh, in comparison, can earn as much as Rs 17.3 crore, including fixed salary and variable pay, in the first full year. His earnings could possibly double to Rs 35.25 crore in the year ended March 2021, provided he steers the company well.
Second, a “Release of Claims” condition ensures that Infosys does not have to pay more than the promised severance to Parekh, in case the board ends his tenure before 2023. Sikka’s contract did not have such a clause.
“The Release of Claims clause, although pretty common globally, is probably the first time an Indian firm has got it included as part of an employment contract,” the head of an executive search firm said on condition of anonymity.
Infosys pays considerably less in severance payment to Parekh than what it had committed to pay Sikka. Parekh stands to get half of his full-year fixed and variable pay, as against Infosys agreeing to pay two years of fixed and variable salary to Sikka.
Third, Parekh cannot work with eight IT firms, including Tata Consultancy Services Ltd (TCS), Accenture Plc and Parekh’s former employer, Capgemini SE for six months from the time he leaves Infosys.
International Business Machines Corp. (IBM), Cognizant Technology Solutions Corp., Wipro Ltd, Tech Mahindra Ltd and HCL Technologies Ltd are the five other companies. Sikka did not have a non-compete clause.
Finally, Infosys has spelt out the process of arbitration, in case of any dispute with the CEO.
Both Infosys and Parekh have agreed to abide by a three-member arbitration panel’s decision and not to contest the panel’s verdict before any court. Sikka’s employment contract did not specify details of the arbitration process.
Clarity on arbitration should further assuage investor concerns as Infosys’s former chief financial officer Rajiv Bansal has challenged the firm’s decision to withhold from making the full Rs 17.38 crore in promised severance pay.
Infosys after having paid Rs 5 crore to Bansal stopped the remaining payments, with the firm declining to share the reason behind this decision. For now, it is not clear if Infosys or Bansal will accept the arbitration verdict and if either of the two warring sides will contest it in court.