Infosys' Narayana Murthy slams salary hike to COO Pravin Rao, rues 'poor governance standards'

After a lull, the co-founders of Infosys have again lamented the dropping perfomance standards of the IT behemoth. Co-founder NR Narayana Murthy said  the generous compensation given to chief operating officer UB Pravin Rao, and approved by the board in February this year, was improper, and would "erode the trust and faith of the employees in the management and the board".

File image of NR Narayana Murthy. Reuters

File image of NR Narayana Murthy. Reuters

In a letter sent out to a handful of journalists from prominent media organisations, including to Deepa Balakrishnan of CNN-News18, Murthy said handing out 60-70 percent salary hikes to top-level executives at a time when most other employees of the company got just 6-8 percent is "grossly unfair" to a "majority of Infosys employees".

According to the report in CNN-News18, the Infosys board has approved a hike in the fixed salary per annum of Rao to Rs 4.62 crore, while the variable component of his package stood at Rs 3.87 crore, payable on achievement of targets set by the board. This is with effect from 1 November 2016. He will also be eligible for 27,250 restricted stock units (RSUs) and 43,000 stock options (ESOP) based on fiscal 2016 performance once the same is approved by the shareholders.

A large number of Infosys shareholders had contested the decision, while Murthy himself had abstained from voting. Following is the full text (verbatim) of the email Murthy wrote, to explain the reasons behind his displeasure:

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.

Updated Date: Apr 03, 2017 07:16 AM

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