The board of Infosys Ltd has inducted director D.N. Prahlad into the nomination and remuneration committee (NRC) that oversees the nomination process and the incentives and pay offered to its senior-most executives, including the chief executive.
Prahlad, a relative of Infosys founder N.R. Narayana Murthy, will now be one of the five members of the current NRC, according to two executives familiar with the development; the decision may make it more difficult for the management to award higher salaries to its senior executives.
Infosys’s nomination and remuneration panel is headed by independent director and professor Jeffrey Lehman, and includes three independent directors: Biocon chairman and managing director Kiran Mazumdar-Shaw, Stanford University provost John Etchemendy and non-executive chairman R. Seshasayee.
An Infosys spokesperson declined to comment.
The induction of Prahlad—whose appointment as independent director in October did not go down well with proxy advisory firms—into the NRC is significant for two reasons.
Firstly, Murthy publicly expressed unhappiness last year with the board’s decision to increase CEO Vishal Sikka’s compensation to $11 million a year from the earlier $7.08 million. In April, only 23.57% of promoter votes were cast in favour of a resolution reappointing Sikka as managing director and CEO and increasing his compensation by 55% to $11 million a year. With Prahlad, also a former employee of the company, on the NRC, Infosys will find it challenging to further increase Sikka’s compensation.
Finally, Sikka’s revised compensation of $11 million includes $4 million to be paid in cash and $7 million in stock. The $4 million cash component includes a base pay of $1 million and $3 million performance-based pay. The $7 million stock compensation includes $2 million to be paid over the year and $5 million in stock to be based on the company’s performance in a year. For the current year, Infosys has already paid Sikka $2 million in stock.
The Infosys board has linked Sikka’s $11 million compensation to the progress the company makes in becoming a $20 billion firm by March 2021. However, Infosys does not disclose the annual targets based on which Sikka will be awarded the $8 million variable or performance-based pay. For the current year, Infosys expects at-best 7.6% dollar revenue growth, which is lower than last year’s growth of 9.1%, and with Prahlad’s induction in the NRC, many believe Sikka will not get the entire component of the variable pay.
“I don’t think the board will now be that bold or brave enough to again increase the CEO’s compensation,” said a senior Infosys executive on condition on anonymity. “Now with Prahlad on the remuneration and nominations committee, Murthy will have some say in how CEO will be paid the variable pay for this year.”
A proxy advisory firm again flagged concerns about Prahlad’s appointment, this time on the NRC. “First, Infosys should have made this disclosure of this appointment of D.N. Prahlad on the NRC. Second, we continue to believe that Prahlad is not an independent director because of his close proximity and relationship with Narayana Murthy and for these reasons, this decision by the company should be questioned by shareholders,” said Shriram Subramanian, founder and managing director of InGovern Research Services.