Infosys Ltd’s chief executive officer (CEO) Vishal Sikka is assured of $10 million in annual compensation, irrespective of the company’s performance, because a clause in his employment contract makes him eligible to earn at least 90% of his total $11 million salary.
Infosys doesn’t deny the existence of the clause, although it doesn’t explain how this fits in with the company’s disclosure to BSE on 24 February last year that Sikka’s compensation could fall to $3 million in 2016-17 if Infosys’s growth fails to meet the internal targets set by the board.
Of Sikka’s $11 million compensation, $8 million is variable pay, the component based on Infosys’s performance. Infosys has not disclosed the annual targets upon completion of which Sikka stands to get full variable salary.
According to his employment contract, Sikka, if need be, can use a so-called “good reason” clause to terminate his existing employment agreement with Infosys, if his annual compensation of $11 million falls by more than 10%.
Effectively, what this means is that Infosys is beholden to pay him at least $10 million if it wants to retain him as CEO.
To be sure, he can choose not to use the clause—which means he can, if he wants to, accept a $3 million salary—but the existence of this clause does put him on a strong footing.
“Good reason”, in the employment contract, is defined as “Executive’s resignation within 30 days... following the occurrence of one or more of the following, without executive’s express written consent: a material reduction (with 10% reduction deemed to be material) in executive’s aggregate target compensation comprised of base pay, target variable pay and target value of stock compensation (except, where there is a substantially similar reduction applicable to senior executives generally, provided that such reduction does not exceed 10%).”
Infosys filed a copy of this employment agreement with the US Securities and Exchange Commission (SEC) on 18 May last year. By then, shareholders had already given their nod to Sikka’s higher compensation, making at least one proxy advisory firm question whether “Infosys deliberately did not share complete information”.
“In light of the fact that there is asymmetry of information in the information provided in the notice that was sent to Indian shareholders when an approval was sought and in the SEC disclosure, this is bad corporate governance,” said Shriram Subramanian, founder and managing director of proxy firm InGovern Research.
An Infosys spokesperson said the clause was also part of an earlier agreement with Sikka that was filed with the SEC on 20 May 2015.
“Your interpretation of the clause in the CEO’s contract is completely wrong,” the spokesperson said in response to emailed queries from Mint if Sikka’s minimum salary is $10 million on account of the “good reason” clause. The spokesperson refused to elaborate.
“We have publicly addressed questions on the CEO’s contract and we stand by that,” the spokesperson said. The spokesperson maintained that Sikka’s salary was variable. “As stated before, the nominations and remuneration committee (NRC) will evaluate the CEO’s variable compensation at the end of the fiscal year based on the company’s performance. Dr. Sikka’s compensation is linked to the company’s aspirational goal to achieve $20 billion in revenues by March 2021,” the spokesperson added.
A lack of clarity on Sikka’s $11 million salary was one reason for the souring of the relationship between the founder-promoters, led by N.R. Narayana Murthy, and the company’s board, Mint reported on 10 February.
A majority of the promoters also did not vote for a resolution seeking a salary increase for chief operating officer U.B. Pravin Rao. According to filings by Infosys with stock exchanges, only 24% of promoter votes were cast in favour of the resolution seeking a 35% raise in Rao’s compensation to Rs12.5 crore. The remaining abstained.
On Sunday, in response to a questionnaire from Mint, Murthy said that the promoters believe the pay increase was “not proper” as the increase is a lot higher than what was awarded to rank-and-file employees. “Every senior management person of an Indian corporation has to show self-restraint in his or her compensation. This is necessary if we have to make compassionate capitalism acceptable to a majority of Indians who are poor,” said Murthy in an email.
Infosys, in its defence on Monday, said that the increase in salary to its senior leaders is in line with global standards, and followed a comprehensive survey of best practices and benchmarked senior management compensation with key Indian and global companies.