Infosys Ltd’s chief executive officer Vishal Sikka is assured of $10 million in annual compensation, irrespective of the company’s performance, because a clause in his employment contract makes him eligible to earn at least 90% of his total $11 million salary.
Infosys doesn’t deny the existence of the clause, although it doesn’t explain how this fits in with the company’s disclosure to BSE on 24 February last year that Sikka’s compensation could fall to $3 million if Infosys’s growth fails to meet the internal targets set by the board.
“Should Dr Sikka fail to achieve minimum performance targets, his remuneration as proposed will fall to US $3,000,000 annually, consisting of US $1,000,000 of base salary and US $2,000,000 of time-based RSUs,” reads a part of the filing made to BSE. RSUs stands for restricted stock units, or compensation offered in the form of stock.
Of Sikka’s $11 million compensation, $8 million is variable pay, the component based on Infosys’s performance this year.
Infosys has not disclosed the annual targets upon completion of which Sikka stands to get full variable salary.
According to his employment contract, Sikka, if need be, can use a so-called “Good Reason” clause to terminate his existing employment agreement with Infosys, if his annual compensation of $11 million falls by more than 10%.
Effectively, what this means is that Infosys is beholden to pay him at least $10 million if it wants to retain him as CEO.
To be sure, he can choose not to use the clause—which means he can, if he wants to, accept a $3 million salary—but the existence of this clause does put him on a strong footing.
Good Reason, in the employment contract, is defined as “Executive’s resignation within 30 days… following the occurrence of one or more of the following, without Executive’s express written consent: a material reduction (with 10% reduction deemed to be material) in Executive’s aggregate target compensation comprised of Base Pay, Target Variable Pay and target value of stock compensation (except, where there is a substantially similar reduction applicable to senior executives generally, provided that such reduction does not exceed 10%).”
Infosys filed a copy of this employment agreement to the US Securities and Exchange Commission (SEC) on 18 May last year. By then, shareholders had already given their nod to Sikka’s higher compensation, making at least one proxy advisory firm question whether “Infosys deliberately did not share complete information”.
“In light of the fact that there is asymmetry of information in the information provided in the notice that was sent to Indian shareholders when an approval was sought and in the SEC disclosure, this is bad corporate governance,” said Shriram Subramanian, founder and managing director of proxy firm InGovern Research.
An Infosys spokesperson said in response to emailed queries from Mint that “your interpretation of the clause in the CEO’s contract is completely wrong”.
“We have publicly addressed questions on the CEO’s contract and we stand by that,” the spokesperson said.
The spokesperson said the clause was also part of an earlier agreement with Sikka that was filed with the SEC on 20 May 2015.
The spokesperson maintained that Sikka’s salary was variable.
“As stated before, the Nominations and Remuneration Committee (NRC) will evaluate the CEO’s variable compensation at the end of the fiscal year based on the company’s performance. Dr. Sikka’s compensation is linked to the company’s goal to achieve $20 billion in revenues by March 2021.”
A lack of clarity on Sikka’s $11 million salary was one reason for the souring of the relationship between the founder-promoters, led by N.R. Narayana Murthy, and the company’s board,
Last month, Murthy lambasted the board and even suggested that non-executive chairman R. Seshasayee consider stepping down, before the two sides seemed to settle their differences.
In January, the board of Infosys inducted director D.N. Prahlad, a relative of Murthy, into the NRC, which oversees the nomination process and the incentives and pay offered to the company’s senior-most executives.