Friday, June 30, 2017

CEO Compensations. Case in Point: Infosys CEO compensation

The compensation packages offered to two key officers of Infosys, Vishal Sikka and U.B. Pravin Rao generated a lot of press this summer and even the co-founder NR Narayana murthy weighed in. The topic also came up a few times during the Q&A with shareholders at the recent AGM (my blog)

This is a topic I reviewed in my recent blog ("How ourfascination with CEO packages impacts our compensation"). After the AGM, I continued to reflect on the topic and decided to review the facts presented in the Annual Report. The section on "Employment agreements with Executive Directors" gives specific details of compensation offered to Vishal Sikka and Pravin Rao.

Vishal Sikka’s compensation is about $11 million
  • Base Pay $ 1 million
  • Variable Pay $ 3 million
  • Stock compensation
  • RSUs $2 million 
  • Performance based equity $5 million

Mr. Sikka also has a Golden parachute that kicks off “in case of termination for other than cause, death, disability or resignation for good reason.” This includes continued payment of severance pay at rate of base pay for 24 months, COBRA / health benefits and accelerated vesting of outstanding equity grants

Pravin Rao’s compensation is about Indian rupees 13 crore (with a fixed Salary Rs 800,00,000 and performance based stock compensation Rs 400,00,000)

These numbers sound rather large but need to be taken in context. These gentlemen run a business that employs nearly 200,000 people around the globe and generates over $10 billion in revenue.

Let us compare these against packages offered to other tech CEOs:
  • The software services giant, Accenture reportedly pays its CEO Pierre-Nanterme a total compensation package of about $18.5 that includes base pay of about $4 million and the rest in stock and incentives. Of course Pierre-Nanterme runs a much larger business generating about US$32.9 billion revenue. 
  • Satya Nadella, Microsoft's CEO made headlines recently for his mammoth $84 million pay package. 
  • According to the confidential sources, Google’s Sundar Pichai’s salary is about $50 million per annum;  and Mr. Pichai’s Net worth is about $600 million  

The arguments for and against large compensations

After the board of directors approved Infosys CEO’s package, Mr. Narayana Murthy was gunning for "corporate governance" and he took to media to voice his concerns about the package There is a bit of socialistic slant in Mr. Murthy’s assertion (reuters)

"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 same arguments – pros and cons – are revived every time there is an announcement of a new CEO taking charge of a public company or a board approval of another CXOs compensation package. Corporate storytellers and journalists with an analytical bent of mind quickly knock out sound-bites like "This CEO’s package is 1000 or 10,000 times that of a Joe/Jane-line worker."

This time it is no different with business-journalist dissecting every angle of COO UB Pravin Rao’s multi-million-rupee package including – dollar-rupee disparity, lower cost of living in India (vs. global packages) etc. Corporate benefits consultants, analysts and academics are also weighing in with an academic and theoretical curiosity.

The current Infosys-COO-package controversy is perhaps a storm-in-teacup that is bound to blow over; but not our fascination with executive compensations. The next time we see an announcement of a large CxO package, similar views and counter-viewpoints will be revived. In the interim, managers will continue to use the arguments learnt from the CxO-package debates while negotiating annual raises of their organization-men (and women - ref my earlier article)

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