Infosys CEO Salil Parekh. (Photo: Mint)
Infosys CEO Salil Parekh. (Photo: Mint)

Infosys rewards CEO, slashes vesting  period of shares to one year

  • Parekh can sell his performance-based shares every year, rather than the earlier stricture of selling them after 3 years
  • Infosys has sought approval from shareholders after the board put its stamp on cutting the vesting period of performance-based shares awarded to Parekh

NEW DELHI: India’s second-largest information technology (IT) services company, Infosys, believes things are back to normal under chief executive Salil Parekh, and it has achieved stability after it was thrown in chaos following the resignation of former boss Vishal Sikka in August 2017.

Infosys has rewarded Parekh by awarding him the right to sell his performance-based shares, a maximum of 13 crore in value, every year, rather than the earlier stricture of selling these shares only after three years.

Bengaluru-based Infosys has sought approval from shareholders after the board put its stamp on cutting the vesting period of performance-based shares awarded to Parekh.

“The company has delivered a strong performance over the past fiscal year, creating significant shareholder value. There is now a clear strategic direction to drive competitive growth through a resilient business model. Additionally, the company has (i) delivered strong total shareholder value, (ii) increased total revenue and share of digital revenue and (iii) achieved organizational stability," Infosys said in a filing to the exchange over the weekend.

“In recognition of the above, and Salil’s contribution to the same as the CEO and managing director, the board of directors of the company has recommended a revision in the vesting schedule of the annual performance equity grant (as defined in the Original Resolution)," said a spokeswoman for Infosys.

“Amending paragraph 3 (b) of the Original Resolution by changing the vesting period of the annual performance equity grant from the current three years to one year," it added.

“The number of shares that will vest under each annual performance equity grant shall be calculated upon the successful completion of each of his three (3) full fiscal years with the company, the first of which shall conclude on March 31, 2021," reads a statement from CEO Parekh’s old employment contract with the company.

“The board believes that things are back to normal at Infosys," said a Mumbai-based analyst at a domestic brokerage, on the condition of anonymity. “Typically, once the shares are vested, CEOs don’t have any lock-in period. With the board removing the lock-in period or what can be called as additional handcuffs, Parekh will now have to only focus on growth."

Infosys clarified that it has not tweaked anything other than removing the lock-in clause of performance-based shares under Parekh’s employment agreement with the company. “This change applies to the grants made in FY19 and prospective grants," said an Infosys spokeswoman.

Infosys reported 7.86% dollar revenue growth, or added $860 million in incremental revenue, to end with revenues of $11.8 billion in the year ended March 2019. Infosys grew faster than the 7.16% and 7.4% growth recorded in FY18 and FY17, respectively. However, Infosys’s growth last year was slower than its larger rival, Tata Consultancy Services Ltd, and the third largest IT firm, HCL Technologies Ltd, which grew 9.6% and 10.1%, respectively.

However, at least one other analyst was skeptical. “Infosys has not disclosed the metrics based on which these performance-based shares will be awarded. Since the vesting time has been cut to every year from the earlier three years, it appears that the CEO has got a sweet deal," said a Mumbai-based analyst at a foreign brokerage.

“Revenue growth is only one parameter. The company has not done well on profitability."

Infosys’s operating margin fell 150 basis points from 24.3% at the end of March 2018 to 22.8% at the end of March 2019. During this time, Mumbai-based TCS expanded its profitability by 80 basis points from 24.8% to 25.6%, while HCL Technologies’ profitability declined 20 basis points from 19.7% to 19.5%.

Infosys shares were the second-best performing scrip among large IT firm with the stock returning 31% in the period between 1 April, 2018, and 31 March, 2019. TCS shares returned 40.4%, higher than the broader BSE-IT Index and BSE-Sensex, which were up 26.3% and 17.3%, respectively.

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