What happens when a multi-billion-dollar firm’s founders lock horns with its board

Narayana Murthy’s latest missive on the salary hike for COO Pravin Rao has just deepened the rift between Infosys founders and the company board. Photo credit: Pixabay.

All’s not well at India’s IT bellwether Infosys (INFY.NS). Its founders, led by N R Narayana Murthy, have been at loggerheads with the company board on what the founders called “the current poor governance standards at Infosys.”

Yesterday, Narayana Murthy slammed the salary hike proposed for the company’s chief operating officer (COO) Pravin Rao in an open letter to the media.

… Giving nearly 60 percent to 70 percent increase in compensation for a top level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6% to 8% is, in my opinion, not proper.

He added: “This is grossly unfair to the majority of the Infosys employees including project managers, delivery managers, analysts, programmers, sales people in the field, entry level engineers, clerks and office boys who are toiling hard to make the company better. The impact of such a decision will likely erode the trust and faith of the employees in the management and the board. With what conscience can a decent person like Pravin ( a man schooled in Infosys values for over 30 years) tell his juniors that they should work hard and make sacrifice to reduce cost and protect margin?”

With a market capitalization of INR 2.32 trillion (US$35.8 billion), Infosys is one of the few companies in India which got itself a professional CEO in June 2014 when it poached Vishal Sikka from German software company SAP AG (SAPG.DE).

Vishal Sikka, CEO of Infosys. Photo credit: Gregor Wolf.

The rift

Vishal was to usher in a strategy overhaul to make Infosys future-ready. Infosys, much like its competitors Wipro and TCS in India, made a fortune out of IT services outsourced by Western clients. But when cloud computing took off and tech startups all around the globe began innovating and disrupting rapidly, things didn’t look rosy for the first-generation IT behemoth of India anymore.

Vishal took over the reins from Infosys co-founder S.D. Shibulal, who was then the company’s CEO.

The founders – now India’s top tech billionaires – swear by the leadership philosophy of compassionate capitalism, which suggests the highest compensation should ideally not exceed 50 to 60 times of the median salary in a company.

Infosys CEO Vishal’s annual salary package increased from US$7.08 million in 2016 to US$11 million in 2017. This drew flak from the company founders. The company board’s defense is that around US$8 million of it is variable pay based on Infosys’s performance this year. Vishal has a steep US$20 billion revenue target for 2017. The company clocked US$10.1 billion revenue in 2016.

The severance package given to Infosys’ former chief financial officer Rajiv Bansal – US$2.58 million, which amounted to 24 months of Rajiv’s pay – also drew flak from the company founders. David Kennedy, who quit as chief compliance officer and executive vice-president of Infosys early this year, was offered US$868,250 in severance pay. This too irked the founders. Another bone of contention between the company board and its founders was the use of private jets by the CEO.

Narayana Murthy’s latest missive on the salary hike for COO Pravin Rao has just deepened the rift. In his letter, Narayana Murthy pointed out that when he started Infosys, he took “just 10% of my salary in my previous job.”

N.R.Narayana Murthy, co-founder of Infosys. Photo credit: Infosys.

Full text of the founder’s letter

Dear Folks,

I have lots of affection for Pravin. Let me state you the facts.

I recruited Pravin in 1985 and had nurtured him throughout my stay at Infosys since then.

He had been sidelined. He was not even a member of the Executive Council at Infosys in 2013 when I came back. Kris, Shibu and I encouraged him, elevated him to the board, and made him the COO when we recruited Vishal as the CEO. So, this abstention has nothing to do with Pravin.

Those of us who have always stood for fairness in compensation and practised it, right from the day Infosys was founded, will have to demonstrate it when needed. This is a time when it is needed. Nothing more and nothing less.

I believe in striving towards reducing differences in compensation and equity in a corporation. You may not know that my Infosys salary at the time of the founding of Infosys was just 10% of my salary in my previous job. I ensured that my younger, co-founder colleagues got 20% higher salary over their salaries in their previous job even though I was 7 levels above them in my previous job and was 11 years older than them. I gave them huge equity compensation the like of which has never been replicated in this world. So, this abstention comes from somebody who has walked the talk.

I have always felt that every senior management person of an Indian corporation has to show self restraint in his or her compensation and perquisites. He or she has to fight for maintaining a reasonable ratio between the lowest salary and the highest salary in a corporation in a poor country like India. The board has to create a climate of opinion for such a fairness by their actions.

This is necessary if we have to make compassionate capitalism acceptable to a majority of Indians who are poor. Without compassionate capitalism, this country cannot create jobs and solve the problem of poverty. Experts tell me that capitalism may come to an end in the not-so-distant future if the current corporate leaders do not heed this advice in India.

Further, giving nearly 60% to 70% increase in compensation for a top level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6% to 8% is, in my opinion, not proper. This is grossly unfair to the majority of the Infosys employees including project managers, delivery managers, analysts, programmers, sales people in the field, entry level engineers, clerks and office boys who are toiling hard to make the company better. The impact of such a decision will likely erode the trust and faith of the employees in the management and the board. With what conscience can a decent person like Pravin ( a man schooled in Infosys values for over 30 years) tell his juniors that they should work hard and make sacrifice to reduce cost and protect margin? I have got so many mails from these people asking whether this resolution is fair. No previous resolution in the history of the company has received such a low approval.

Finally, given the current poor governance standards at Infosys, let us also remember that these targets for variable pay may not be adhered to if the board wants to favor a top management person.

See: Infosys’ billionaire founder: this winter will ‘separate men from boys’

The Infosys founders made their billions in personal wealth from their shares in the company. Narayana Murthy co-founded Infosys with six friends, including S.D. Shibulal, Kris Gopalakrishnan, and Nandan Nilekani, in 1981 with a capital of US$250 pooled in.

Whether the salaries of founder-CEOs can be compared with that of a professional CEO who came in much later is a matter of debate.

Big Indian private companies have been reluctant to let go of the reins to professional CEOs. Infosys founders took turns at being the CEO before bringing in Vishal Sikka.

This post What happens when a multi-billion-dollar firm’s founders lock horns with its board appeared first on Tech in Asia.

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