Infosys contracts: Sikka can’t poach people when he leaves; Rao can’t work for competition
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Bengaluru: Infosys Ltd’s existing contract with its chief executive officer (CEO) Vishal Sikka bars him from poaching people from the company for at least a year when he quits. And its contract with chief operating officer (COO) U.B. Pravin Rao says he cannot work with five technology firms, including Tata Consultancy Services Ltd (TCS), Wipro Ltd and Cognizant Technology Solutions Corp., for at least six months after he leaves.
Surprisingly, despite disclosing these details of employment terms of two of its senior-most executives, the company is coy when it comes to explaining why it paid an unusually high sum of Rs.23.02 crore in severance pay, salary and other benefits last year to its outgoing chief financial officer (CFO) Rajiv Bansal.
Infosys said this sum of Rs.23.02 crore reflects the “enhanced non-compete clause” the company signed with Bansal, but the Bengaluru-based company will not explain what it means by “enhanced non-compete”. It isn’t known when this “enhanced” contract was signed.
Understandably, Infosys’s reluctance to explain this has come under attack from proxy advisory firms and analysts, and even a few executives within the company. Infosys has always been a “paragon of transparency and trust”, according to Shriram Subramanian, founder and managing director of investor proxy firm InGovern Research Services, and for this reason, he added, the management owes an explanation, at least to its shareholders.
Mint puts the spotlight on the seven important features of Infosys’s employment contracts with Sikka and Rao.
1. Tenure: Under Sikka’s revised contract, his current term with Infosys is from 1 April 2016 to 31 March 2021. Rao’s existing contract is for five years, starting 10 January 2014 and ending 9 January 2019.
Verdict: Unless Rao decides to leave in the coming years, Infosys will need to reappoint him towards the end of calendar year 2018. Rao, 54, will be 57 by then. Infosys has a retirement age of 60.
2. Compensation: Sikka earned Rs.48.73 crore salary for the year ended March 2016; Rao ended the year with Rs.9.28 crore in earnings. But Sikka’s earnings also include the Rs.14 crore variable pay for 2015-16. Sikka earned Rs.5.96 crore in gross salary and the remaining in shares and benefits. Rao’s compensation of Rs.9.28 crore included Rs.89 lakh in gross salary, Rs.2.55 crore in benefits, Rs.16 lakh in retiral benefits and Rs.5.68 crore in bonus and others.
Verdict: Sikka is the first non-founder CEO at Infosys and will be paid $11 million, of which $7 million is to be paid in stock units and options, tied to the performance of the company. Rao, whose total salary is less than a sixth of Sikka’s, has received 555,520 shares in Infosys over the last 30 years he has been at the company. This translates to Rs.69.49 crore.
3. Severance pay: Sikka is the only Infosys employee who is eligible for a severance pay, in case of any dissolution of his employment. Sikka’s severance pay is at least $2 million. Rao does not have any severance pay in his current contract with Infosys.
Verdict: Infosys’s nomination and remuneration panel comprising three independent directors has the authority to award a severance pay to an employee. This explains why the Infosys Board approved of former CFO Rajiv Bansal being paid a severance pay, although the company has shied away from explaining the reason behind this decision.
4. Notice period: Sikka needs to give a three-month or 90-day notice period to Infosys; Rao has to give a 180-day or six-month notice to Infosys.
Verdict: Too much to ask from Rao.
5. Non-compete: Sikka does not have any non-compete clause in his contract with Infosys. However, Rao cannot work with five technology firms, TCS, Wipro, Cognizant, International Business Machines Corp and Accenture Plc. for six months from the time he leaves Infosys. Further, Rao cannot accept an offer for six months from any client of Infosys (typically large Fortune 500 companies), with whom he has worked over his last 12 months at Infosys.
Verdict: It is tough to implement, as according to experts, Section 27 of the Indian Contract Act does not recognize the validity of a non-compete clause, and an employee is free to work once he/she is out of an organization.
6. Solicitation of employees: Upon leaving Infosys, for at least a year, Sikka cannot directly or indirectly solicit employees at Infosys. Rao does not have any stricture.
Verdict: This is understandable. Since Sikka took over as boss on 1 August 2014, at least 13 senior executives have joined him from SAP. But experts believe this is tough to implement as Sikka, who after joining a new organization need not write to any of the employees at Infosys directly and can always ask a headhunter to join his firm. Still, it is heartening to see the Infosys board insert this clause in Sikka’s contract.
7. Governing law: In case of any dispute, Sikka’s contract will be governed by the laws of the state of California. Rao will need to knock at the doors of courts in Bengaluru to resolve any dispute.
Verdict: This is understandable because Sikka is stationed out of California. This also explains why Sikka does not have a non-compete clause in his employment contract with Infosys: Under California laws, a “non-compete clause” would be void and not enforceable, according to Heather Bussing, a California-based attorney.