The founders have raised concerns over some exorbitant severance packages, and a hefty hike.

Infosys founders are angry with the companys board and heres whyNR Narayana Murthy / Nandan Nilekani
news Corporate Governance Thursday, February 09, 2017 - 19:41

After Cyrus Mistry’s unceremonious dismissal as director of Tata Sons, trouble seems to be brewing now in India’s software giant Infosys. The founders of the company are in conflict with R Seshasayee led management board for authorising exorbitant severance packages for two exiting employees, as well as the hike in CEO Vishal Sikka’s yearly compensation.

According to Sankalp Phartiyal’s report for Reuters, former Chief Financial Officer (CFO) Rajiv Bansal was given a severance package worth $2.58 million (Rs 17.25 crore) which amounted to 24 months’ pay.

Meanwhile, former General Counsel David Kennedy was also awarded a severance package worth 12 months’ pay - $868,250 (Rs 5.8 crore).

CEO Sikka’s annual compensation sum was also hiked to $11 million – a steep rise from $7.08 million in 2016. However, his fixed salary stands at $3 million while the remaining $8 million is a variable component, reported Firstpost.

While Rajiv Bansal took charge in 2012, David Kennedy was appointed as Executive Vice President (EVP), General Counsel in 2014. Bansal quit in 2014 and Kennedy quit in January this year. The latter is also the eighth EVP to quit since Sikka became CEO in August 2014, reported Varun Sood for Livemint. Sikka is the first non-founder CEO of Infosys.

Infosys co-founders Narayana Murthy, Nandan Nilekani and Kris Gopalakrishnan wrote to the Board in January regarding their concerns about the hike and severance packages.

V Balakrishnan, former Infosys CFO who preceded Bansal, told TNM that the norm for severance packages is generally three months’ pay. “None of the older CFOs got such an exorbitant package. It raises a lot of questions about disclosure and governance,” he said.

He also said that Sikka’s increased remuneration was also initiated without proper transparency. “What is the basis and what are the variables involved? It’s not clear,” Balakrishnan said.

When asked to comment on the developments by Reuters, Infosys said that full disclosures had been made and the decisions had been made “bona fide in the overall interest of the company”.

However, Balakrishnan said that the management had given “vague” statements which did not allay the concerns of the founders.

Shriram Subramanian, Managing Director of InGovern, a corporate governance research and advisory company, told TNM that such issues are bound to happen when a company makes a shift away from the ‘founder-led’ format.

“It’s an orientation issue between the founders and the new management. The founders feel responsible for maintaining a culture and values of the company while the focus may be different for the newcomers,” Shriram explains.

Founders had raised concerns earlier as well when Punita Sinha was appointed as an independent director in the board about a year ago. She is the wife of Union Minister Jayant Sinha. Narayana Murthy had objected to her appointment saying that Infosys had never had a board member who was the spouse of an active politician, Indian Express reported.

Shriram acknowledged however, that the founders who along with their families hold close to 13% shares in the company, have the right to question these changes.

He also said that the tussle between within the top management is unlikely to affect employees directly, but the impact may be felt on the overall focus of the company. “When the management is united, energies are focused on bringing more business and dealing with competition. That can’t happen in entirety if they are focused on inner bickering,” Shriram said.

From the point of view of corporate governance, Shriram said that tussles like these aren’t necessarily bad because they put the board and management to test. However, transparency should be maintained, he insisted.

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