Describing the tussle between Infosys’s board and its founders over the compensation and severance packages of some top executives as a “difference in perception”, Kiran Mazumdar-Shaw, an independent director on the software major’s board, said it was important to recognise that the new generation of leaders come with a different set of priorities compared to the founders.
Speaking to The Indian Express, Shaw, who is chairperson of bio-technology firm Biocon, said, “Unlike the first generation founders and entrepreneurs including me who have been frugal while building companies, the next generation of leaders come with a different set of criteria. In the past, people joined companies like Biocon and Infosys at lower salary packages, but now to attract talent we have to match salaries. And why should anyone join at a lower package just because it is a Biocon or Infosys?” Asked about the tussle between the founders and the board, Shaw said, “What you call a tussle is nothing but a simple difference in perception.
Founders have every right to express their opinion and concerns but it is our (the board’s) responsibility to address the concerns and allay the fears of the founders.” Infosys founders, N R Narayana Murthy, Kris Gopalakrishnan and Nandan Nilekani had flagged to the company’s board their concerns about the pay rise of Chief Executive Vishal Sikka and severance packages given to two former senior officials. The Infosys founders, along with their family members, owned 12.75 per cent of the company as of end-December, according to stock exchange data.
In an interview to The Economic Times published Friday, Murthy said that since June 1, 2015, there has been a drop in governance standards at Infosys. “Providing huge severance pay (with 100 per cent variable) to some departing employees while giving only 80 per cent variable for employees in the company is one such example. Such payments raise doubts whether the company is using such payments as hush money to hide something,” Murthy said.
Murthy also said that in companies with good governance in developed countries, the ratio of the CEO salary to the next lower level is generally 1:2. But currently at Infosys, it is about 2000 between the CEO salary and the entry-level salary for a software engineer. “In poor countries like India where capitalism is still nascent, it is the responsibility of leaders of capitalism to ensure that these ratios are even lower. This is where the chair of the nomination and remuneration committee and the chair of the board have a huge responsibility,” Murthy said.
He also said that the chair of the nomination and remuneration committee and the chair of the board of Infosys should “accept their mistakes and show contrition”. Murthy has suggested that the company should bring in NYU Stern professor Marti G Subrahmanyam as co-chair to the board and make its independent director D N Prahlad the chairman of the nomination and remuneration committee.
However, Shaw defended the salary of Sikka, saying it was tied to performance of “lofty goals”. “If he achieves these lofty goals he gets the pay otherwise he doesn’t get it. The board has taken everything into consideration before approving it,” said Shaw. Sikka’s compensation saw a surge from $7.08 million in 2016 to $11 million in 2017. His salary, according to reports, includes a base of $1 million, $3 million in variable pay, $2 million in restricted stock units (RSUs) and another $5 million in stock options, which would be awarded to him based on Infosys’s performance.
According to Shaw, Infosys currently needs to focus on growth and transformation as the technology industry is facing multiple challenges in the current economic environment. “The difference in perception between the founders and the management is a non-issue but it should not distract the management from focusing on growth and transformation,” said Shaw.
“What is needed is effective communication between the founders and the management of the company. At Infosys, we have just done that. We have been very transparent and set up a legitimate and formal channel of communication with the founders by appointing law firm Cyril Amarchand Mangaldas to clear all the confusion,” Shaw said.