A recap of Infosys row: Narayana Murthy's fresh salvo revives spat over compensation

N.R. Narayana Murthy, Chairman Emeritus of Infosys, speaks during an interview with Reuters in Bangalore, February 28, 2012. India's IT industry, with Bangalore firms forming the largest component, is now worth an annual $100 billion and growing 14 percent per year, one of the few bright spots in an economy blighted by policy stagnation and political instability. Firms like Infosys, India's $6 billion outsourcing giant, are moving up the value chain in their own way and switching from traditional markets in the United States and Europe. Picture taken on February 28, 2012. To match Insight INDIA-OUTSOURCING/ REUTERS/Vivek Prakash (INDIA - Tags: BUSINESS EMPLOYMENT SCIENCE TECHNOLOGY) - RTR30CVS

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In February, questions over high payouts to current and former employees triggered a row between the Infosys board and the company’s founders. The saga played out over a fortnight before an uneasy truce was called. Now, after a 40-day lull, the tension has resurfaced on the same issue.

On Sunday, Infosys informed the exchanges that its shareholders had ratified a move to grant a massive pay hike to Chief Operating Officer UB Pravin Rao.

Rao will now earn Rs 12.5 crore a year, an increase of 35 percent over his 2016 pay. He had received a 53 percent increase the previous year.

Soon after, founder and former chief executive NR Narayana Murthy circulated a letter to the media in which he objected to Rao’s raise, saying the steep hike was “not proper” and “grossly unfair” given that most employees only received a 6-8 percent increase in their salaries.

“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,” read Murthy’s letter.

With another boardroom battle set to play out at the country’s second-largest IT firm , let’s recap how we got here:

First Salvo

Five of the seven original founders —Murthy, Nandan Nilekani, SD Shibulal, Kris Gopalakrishnan and K Dinesh—are categorised as promoters of the company. Together, they own a 12.75 percent stake in the company.

On February 8, it emerged that the Infosys founders had written a letter to the board raising concerns over the governance of the company.

At the heart of the concerns raised in the letter, written in January, were high payouts to top-level personnel, including Chief Executive Officer Vishal Sikka.

Sikka's High Salary

Vishal Sikka’s pay was hiked last year to USD 11 million a year. Of this, USD 3 million is his fixed salary and USD 8 million is a variable component, subject to Infosys’ progress in achieving its targets.

Infosys had earlier linked Sikka’s compensation to its target of becoming a USD 20 billion company by 2021.

Severance Payouts

The founder also raised question marks over the severance packages given to former Chief Financial Officer Rajiv Bansal and General Counsel David Kennedy.

While Bansal, who quit in October 2015, was handed a Rs 17.38 crore severance package, Kennedy was in line to receive aggregate severance payments of USD 868,250 plus reimbursements.

Infosys issued a statement saying all these decisions had been made with full transparency.

Murthy Speak

Murthy wondered aloud whether Infosys was using the steep severance payments as “hush money to hide something”.

He also demanded that “some good people” be inducted to the board.

Amid reports that he questioned Sikka’s extravagant lifestyle, Murthy said he had no personal issues with him.

Whistleblower Letters

In between, two whistleblowers sent letters to the country’s market regulator criticising the payout to Bansal and alleging irregularities in the USD 200 million acquisition of Israeli firm Panaya.

Sikka had refuted the allegations, saying they were “calculated to mislead and sensationalise”.

Press Conference

As the row threatened to escalate, Sikka and Infosys Chairman R Seshasayee called a press conference to explain the company’s stand on various issues.

Sikka claimed it was “not a battle” and the duo promised to engage with the founders on their concerns. They also said a new severance package plan had been put in place to ensure there would be “no more Rajiv Bansals”.

Old Hands Speak Out

Infosys was then said to have hired Cyril Amarchand Mangaldas to review and address questions over governance.

Former CFO and founder V Balakrishnan had criticised this move and said the board had been a big let-down in engaging with shareholders. Fellow ex-CFO Mohandas Pai had also questioned Infosys’ capital allocation strategy.

Uneasy Calm

Murthy eventually called a truce with the Infosys board, saying it was made up of “decent people”. He said, however, that he was not withdrawing his concerns and expected the board to address them.

Seshasayee also claimed he had received a commitment from the Infosys founders and that they would convey their differences in-house and make them public. With his latest remarks, Murthy has now ended the truce.