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Salil Parekh and Thierry Delaporte deserve every cent of their remuneration

Surely, benchmarking CEO pay is a thorny debate, and there are no easy answers. But let there be logic when a vexing subject like CEO compensation is being discussed. (Photo: iStock)Premium
Surely, benchmarking CEO pay is a thorny debate, and there are no easy answers. But let there be logic when a vexing subject like CEO compensation is being discussed. (Photo: iStock)

  • Like in a sports team, where a few players earn significantly more than the rest of the team, a large IT company will always have a leader and group of some senior leaders making significantly more than the graduate engineers

Not all companies find it easy to justify high remuneration when it comes to CEO remuneration. Last year, Eicher Motors Ltd witnessed an institutional investor revolt against giving a 10% raise to managing director Siddhartha Lal.

India’s largest technology services companies are not among the companies that face this challenge.

At six of the largest IT services firms, not a single resolution regarding CEO compensation has seen any major dissent by public shareholders over the last decade, according to filings reviewed by Twich+.

This is not to conclude that all is well, but we’ll come to it in a bit. The simple point is the chief executives at the largest IT services companies are not overpaid.

At Infosys Ltd, Salil Parekh earned 71.2 crore last year, while his friend and former Capgemini colleague, Thierry Delaporte, made 79.8 crore at Wipro.

There was a brouhaha over the remuneration paid to the two leaders. One article cited an analysis by TeamLease, a staffing firm, that the salaries of CEOs at IT services companies had increased at a faster clip than that for graduate engineers over the last decade. The median annual pay of CEOs jumped more than ninefold between 2012 and 2022, while the median pay of graduate engineers increased only 45%, according to the article.

This argument is a bit facetious.

In 2012, none of the 10 largest IT services companies had an external candidate as CEO. Back then, either the founder served as the boss (Infosys and Cognizant), or there were internal candidates (Wipro, HCL Technologies Ltd) as bosses.

In 2022, save for Tata Consultancy Services Ltd, all other companies have CEOs hired from outside. Now, it is a given that a company pays more to an external candidate, so comparing the remuneration of a founder-CEO or internal candidate to an external candidate is wrong. Agreed, this does bring to question the internal succession planning exercise and why all firms have entrusted external leaders as bosses.

A related point missing from the current debate is that every company wants the best athletes like a sports team. Like in a sports team, where a few players earn significantly more than the rest of the team, a large IT company will always have a leader and group of some senior leaders making significantly more than the graduate engineers.

At Infosys, many argued that Parekh’s 71.2 crore salary was 872 times the median employee’s salary. A few, like former Infosys board member T.V. Mohandas Pai, said that the disconnect between the salaries of CEOs and median employees is egregious.

But what was not discussed was that excluding the restricted stock units components, Parekh’s salary was 229 times the median employee’s salary. Infosys’s board tied a large component of Parekh’s compensation to the stock performance, something which all well-run companies globally do.

Above all, the performance of the sector in the last decade is praiseworthy. Tech Mahindra Ltd has managed a compounded revenue growth of 18% in the last decade, while Infosys’s market cap has grown 235% during the last decade. Running Infosys, which had $6.9 billion in revenue at the end of March 2012, is a lot different than managing the Bengaluru-based company, which did $16.3 billion in business last year. Obviously, a leader stands to earn more than in the past.

Finally, a bigger reason for IT companies managing to keep the costs of graduate engineers in check is on account of the ingenuity of these companies. In the past, IT services companies used to visit engineering colleges to hire engineering graduates. Now, large technology services firms have their online entrance examinations, which help them hire the maximum number of graduates and also help them keep a check on their salaries.

For these reasons, your writer believes that the CEOs of Indian IT services companies deserve every cent the boards have agreed to reward them. However, institutional shareholders are still not completely happy when it comes to how the remuneration of a few CEOs has been disclosed.

Sample three instances.

In June 2020, Norway’s Norges, the world’s biggest sovereign wealth fund, expressed its displeasure when Cognizant Technology Solutions Corp. sought shareholder approval on the compensation of its senior executives, including chief executive Brian Humphries.

“The board is responsible for attracting the right CEO and setting appropriate remuneration. A substantial proportion of annual remuneration should be provided as shares that are locked in for 5-10 years, regardless of resignation or retirement," said Norges. “The board should provide transparency on total remuneration to avoid unacceptable outcomes. The board should ensure that all benefits have a clear business rationale. Pensionable income should constitute a minor part of total remuneration."

In August 2020, Blackrock voted against Delaporte’s remuneration as the American asset management firm was unhappy with the disclosures made by Wipro. “The Plan does not provide performance criteria attached to share grant," reasoned Blackrock.

Finally, in August last year, Blackrock again voted against HCL Technologies’ decision to give its CEO C. Vijayakumar up to $10.8 million annually over the next five years. “Remuneration arrangements and remuneration committee are poorly structured," reasoned Blackrock.

It’s about time the boards start paying heed to the arguments made by the largest money managers.

Finally, it beats your writer why homegrown technology services firms continue to face a backlash from some sections when CEOs of profit-making and cash-generating firms pay a few hundred crores to their bosses while some loss-making firms continue to get away. Freshworks Inc. gave its founder and chief executive, Girish Mathrubootham, $233.41 million in stock awards that will vest over the next seven years. Stripping out the performance-based stocks, Mathrubootham is assured of making at least $8 million a year from the company, which continues to make losses. Yet, there is not a whimper of protest against this decision by the board of Freshworks.

Unlike Mathrubootham, Parekh at Infosys (and to some degree, Delaporte at Wipro) have demonstrated that these leaders have managed to steer their companies well.

Surely, benchmarking CEO pay is a thorny debate, and there are no easy answers. But let there be logic when a vexing subject like CEO compensation is being discussed.

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