Infosys has changed the severance pay rule of its management team after founder N R Narayana Murthy criticised the board of directors over violation of corporate governance norms in giving excessive pay to a departing executive.
The disclosure comes ahead of chief executive Vishal Sikka’s meeting with institutional investors on Monday and a board-convened first media interaction in its history. This was after public criticism from Murthy and his former colleagues, T V Mohandas Pai and V Balakrishnan, rattled Infosys and the information technology (IT) industry.
The company says the concerns are due to “perception challenges” because of a combination of shifts – from founder-chief executive officer to founders-led board to professional chief executive and an independent board. Plus, its transformation to a services and software entity, from a traditional IT services company.
“As for the quantum (of compensation to Rajiv Bansal, then the finance head, at end-2015), while it is not ordinary, when we look back in hindsight, lessons could have been learnt and action has been taken,” said Roopa Kudva, independent director at Infosys and managing director of Omidyar Networks, a company that looks at social impact investments, in a phone interview. “We have done benchmarking for severance pay, according to each country and reworked the senior management contract to reflect it.”
She said there are no irregularities or ‘hush money’ paid in the Bansal episode at Infosys, which has strong internal audit controls.
This could be among the small battles won by Murthy to assert himself on the company he built over three decades with five other co-founders. His recommendation to appoint relative and former Infosys employee D N Prahlad on the board was honoured last year.
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The board members say the concerns are largely due to a transition from a hands-on executive board to an independent one, and the judgement taken on decisions that could lead to changes in perception. Infosys has hired law firm Cyril Amarchand Mangaldas to engage with stakeholders, including the founders, and take suggestions to recommend to the board, even as it independently engages with them as large investors.
The founders collectively have around 13 per cent of the stake in Infosys. Life Insurance Corporation has 7 per cent.
“The most important thing is that the founders and the board need to have a good alignment. These differences are based on perception challenges. That is what we are trying to overcome,” said Kiran Mazumdar-Shaw, a board member and chairman of Biocon.
Sikka’s actions have also been under scrutiny since he took over as the first non-founder chief executive. His focus has been to transform the company from being a services firm to one that sells services and software, besides setting an ambitious target of $20 billion annual revenue by 2020. If Infosys meets the forecast earlier set for the year to March, it would achieve $10 billion in revenue.
This is in contrast with the philosophy of “underpromise and overdeliver” of Murthy, who built the company with this culture over three decades. Sikka, hired from business software maker SAP, has also used private jets for official travel, contrary to the spirit of thrift adopted by the conservative founders.
“Everyone knows his target is too ambitious. Sikka himself has time and again maintained it is an aspiration,” says a senior executive, who did not want to be named. “It is naïve on the part of the board to believe this. No wonder Murthy is furious.”
Kudva, who is on three committees at Infosys (audit, finance and investment, and risk and strategy), says in Sikka’s compensation there is a higher variable component, not in cash but with stocks, linked to achieving of targets.
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