Infosys defies NR Narayana Murthy, defends pay hike of UB Pravin Rao; CEO Vishal Sikka says ‘must retain key talent’

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Published: April 4, 2017 7:17:39 AM

Infosys on Monday defended the revised compensation of `12.50 crore to be paid to U B Pravin Rao, the COO, which founder N R Narayana Murthy believes is grossly unfair.

Infosys, U B Pravin Rao, Infosys COO, N R Narayana Murthy, Vishal SikkaInfosys on Monday defended the revised compensation of `12.50 crore to be paid to U B Pravin Rao, the COO, which founder N R Narayana Murthy believes is grossly unfair. (Source: Reuters)

Infosys on Monday defended the revised compensation of `12.50 crore to be paid to U B Pravin Rao, the COO, which founder N R Narayana Murthy believes is grossly unfair. Pointing out in a statement that the cash component had, in fact, been lowered to `4.6 crore from `5.2 crore, down 10.6%, Infosys said only the stock compensation had been increased. The performance- based pay has been raised to 63% from 45% of the total compensation, the company explained.

The IT major, which had been at the receiving end of the founders for the high severance package paid to former CFO Rajiv Bansal, faces a fresh attack from Murthy. In a stinging comment on Sunday, Murthy had said, “With what conscience can a decent person like Pravin ( a man schooled in Infosys values for over 30 years) tell his juniors that they should work hard and make sacrifice to reduce cost and protect margin? I have got so many mails from these people asking whether this resolution is fair.”

Rao’s new package is effective from November 1, 2016.“Given the four year vesting period of the stock, the net increase in Pravin Rao’s compensation for FY18 will be 1.4%. This could go up to 33.4% in fourth year, assuming similar grants are made in subsequent years based on company and individual performance,” the statement said.
The revised compensation structure of Rao includes `4.62 crore in fixed salary, `3.88 crore in variable compensation, and `4 crore as performance-based stock compensation.

The RSUs and stock options will vest over a four year period. In response Infosys CEO Vishal Sikka said on Monday, “Pravin’s commitment and contribution to the company has been immense, and his partnership over the past3 years has been critical to the successes and growth of our company. 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.”

While 67% of the shareholders approved the resolution, Murthy said “No previous resolution in the history of the company has received such a low approval. Infosys acknowledged the sentiment of the shareholders who did not vote in favour of the resolution and stated, “We have also taken careful note of the statements expressed by the company’s promoters. This Board views this as important feedback as it continues to work with all stakeholders to ensure the long term interests of the company.” Infosys said that it undertook this revised compensation structure to attract and retain top quality talent following a comprehensive survey of best practices and benchmarked senior management compensation with key Indian and global companies.

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Murthy has raised corporate governance issues within the company and also questioned the high compensation paid to the executive management team. “Giving 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 6-8% is, in my opinion, not proper. This is grossly unfair to the majority of the Infosys employees… (from project managers to office boys) who are toiling hard to make the company better. The impact of such a decision will likely erode the trust and faith of the employees in the management and the board,” he said.

Murthy’s letter to the media has also made indirect reference to CEO Vishal Sikka. “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 favor a top management person,” Murthy said. Sikka’s compensation has been revised to $11 million, effective January this year, from the earlier level of $7 million even as the company is expected to close FY17 in single digit growth rate.

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