Under fire again from its founder N R Narayana Murthy over the compensation package awarded to its chief operating officer (COO) Pravin Rao, Infosys Ltd on Monday sprung to his defence stating that the hike in compensation for senior management is necessary to meet the long-term interests of the firm and its shareholders. Reacting to criticism by Narayana Murthy over the pay hike authorised by the Infosys board on March 31 to Pravin Rao, Infosys chief executive officer (CEO) Vishal Sikka, whose pay hike was also questioned by founders earlier this year, stated that the pay revision is intended to make Infosys more competitive. Pravin Rao had contributed immensely to the company over the last three years, he said.
“It is essential for us to see that this revision in his compensation, as with several of our senior leadership team, is focused on making Infosys more competitive, is benchmarked against peers, is critical for us to retain key talent and aligns the long-term interests of our leadership team with that of our shareholders,” Sikka said in an official statement on Monday. A pay hike proposed for Rao by the company was cleared on March 31, with 60 per cent of the board voting in favour although only 24 per cent of the promoters of the company voted for it.
While Rao received a salary of Rs 9.28 crore in 2016, the salary hike okayed by the board will see him get a 35 per cent hike at Rs 12.5 crore comprising fixed salary of Rs 4.62 crore, variable pay of Rs 3.88 crore and a performance-based stock pay out of Rs 4 crore. On Sunday, Infosys founder Narayana Murthy had in communications to the media criticised the pay hike stating that such large hikes were untenable when employees are given marginal raises and that the hike is not in consonance with the company’s philosophy of compassionate capitalism.
In its reaction on Monday, Infosys said that the cash component of Pravin Rao’s compensation would decrease by 10.6 per cent from Rs 5.2 crore (including annual cash bonus) to Rs 4.6 crore, while the performance-based component, which is linked to the company’s and individual performance, would increase from 45 per cent to 63 per cent of total compensation. “Given the four-year vesting period of stock, the net increase in Mr Pravin Rao’s compensation for FY18 will be 1.4 per cent. This could go up to 33.4 per cent in year 4, assuming similar grants are made in subsequent years based on company and individual performance,” Infosys has stated.
“Infosys has the responsibility to attract and retain top-quality talent to be effective in the transformation journey that the company has embarked upon. In this context, the company undertook a comprehensive survey of best practices and benchmarked senior management compensation with key Indian and global companies,” the company said.
The new compensation structure with the reduced cash component and higher stock incentives “was rolled out for the entire senior leadership including Pravin Rao, Chief Operating Officer. The details were disclosed in the stock exchange filings on October 14, 2016,” the company said.
Criticising the move to enhance Rao’s pay package, Murthy has called it improper and “grossly unfair” to the majority of Infosys employees. “Giving nearly 60 per cent to 70 per cent 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 six per cent to eight per cent is, in my opinion, not proper,” Murthy said. “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. He or she has to fight for maintaining a reasonable ratio between the lowest salary and the highest salary in a corporation in a poor country like India. The board has to create a climate of opinion for such a fairness by their actions,” he said.
Earlier this year Murthy and other co-founders had in a letter to the Infosys board of directors questioned a pay hike given to Infosys CEO Vishal Sikka. Though Murthy did not publicly criticise the hike given to Sikka, he had questioned a Rs 17.38 crore severance package okayed by the board for the exit of former CFO Rajiv Bansal.
The board in a decision taken on February 24, 2016 to reappoint Sikka as the CEO and managing director from April 1, 2016 to March 31, 2021 had approved enhancement of the CEO’s package to $11 million from the previous $7.08 million under an executive employment agreement.
The 2016 package comprised of $1 million as salary, variable performance-linked pay of $3 million plus $2 million in restricted stock units and an additional $5 million as performance-based stock option. The 2014 package had comprised of $9,00,000 as the base salary, $4.18 million as variable pay and $2 million as one time stock compensation.
Murthy had questioned the functioning of the chairman of the board and the head of the remuneration committee in the context of the CEO pay hike and the CFO severance package.