Infosys CEO Salil Parekh gets 88% pay hike, salary jumps from Rs 42 crore to Rs 79 crore per annum

Such an enormous salary hike is unusual for a firm that often prides itself on humble origins and middle class background of founders.

The hike announcement comes days after it reappointed Parekh as managing director and CEO for five more years, starting July 1 signalling trust in a leader who turned around the company and restored stability.

The new pay hike will further widen the gap between the CEO and an average Infosys employee. Currently, the ratio of median remuneration of CEO to employees is 229 (excluding stock-based compensation) and 872 (including stock-based compensation).

In a column many years ago, cofounder NR Narayana Murthy had said that giving huge salaries to just the CEOs does not make sense and suggested a ratio of 20 to 25 between the lowest and highest salary.

While IT CEO salaries have been steadily rising, fresher salaries have stagnated in the last decade despite a war for talent and zooming attrition. Salaries of freshers now stand at Rs 3.5-4 lakh annually, an 8-10 percent increase over a decade.

Why Infosys is paying so much 

Infosys said that any comparison of CEO salary to the median remuneration should be seen in the context of the company’s strong performance and stock price growth. The firm said it considered key factors such as total shareholder return, rise in market cap and growth while recommending his reappointment and change in remuneration.

"Under his leadership the total shareholder return (TSR) was an impressive 314 percent, the highest among peers. Revenue has grown from Rs 70,522 crore (fiscal 2018) to Rs 1,21,641 crore (fiscal 2022), a compound annual growth rate of 15 percent (versus nine percent for the four years before that) and the profits have also increased from Rs 16,029 to Rs 22,110 crore," it said.

Further, the company said it has more than doubled the share of digital revenue from 25.5 percent (fiscal 2018) to 57.0 percent (fiscal 2022) and is now considered a leading digital company with industry analysts rating it as a leader in 32 categories. It has also signed large deals with a total value of $39 billion for the four-year period from fiscal 2019 to fiscal 2022.

The annual report of the firm said: "The committee has also recommended a revised compensation structure considering that Salil is not a first-time CEO and MD, as he was at the time of his initial appointment. Salil is the CEO of Infosys, a globally listed entity, and has demonstrated successful business and overall performance since his appointment.”

“This growth is accompanied by an increase in the total number of employees from 2,04,107 to 3,14,015 during his tenure. The company competes with global peers, particularly in North America and Europe, with almost 87 percent of the revenue coming from these geographies, and therefore, Salil’s remuneration has to be determined keeping in view international benchmarks," the report said, justifying his hike.

Parekh: Highest paid IT CEO in India

The firm also said Parekh's proposed total target remuneration vis-à-vis the remuneration most recently paid to CEOs of peers would be around the median. Peers are Accenture plc, Cognizant Technology Solutions Corporation, DXC Technology Company, Tata Consultancy Services Limited, Wipro Limited, Tech Mahindra, Capgemini, HCL Technologies Limited, International Business Machines Corporation, and Atos SE.

Parekh will be the highest paid among Indian peers. For context, larger rival TCS CEO Rajesh Gopinathan annual salary stands at Rs 25.76 crore, while Wipro’s Paris-based CEO has a pay of Rs 64.34 crore. HCL Tech CEO has a package of Rs 32.21 crore while Tech Mahindra CEO earns Rs 22 crore.

Further, almost 97 percent of the increase in Parekh's proposed annual remuneration is linked to performance. Under the revised remuneration, fixed compensation will account for less than 15 percent of this total compensation at target (compared to 23 percent under his current terms).

Additionally, 70 percent of performance-based compensation is given in the form of RSU or PSU (performance stock units) grants and therefore is predicated on the performance of the share price. Parekh will be granted 2,21,000 PSUs (Rs 34.75 crore) for the fiscal 2023 performance, which is similar to the 2,17,200 (adjusted for bonus shares) PSUs (Rs 13 crore) that was granted in his first year of appointment.

The strategic milestones include those related to organizational development, quality of revenue and such other appropriate measures as determined by the board or its committee annually. For instance, for fiscal 2022, some of the metrics used to determine the performance under these criteria were growth in digital revenue, number of $50 million and $100 million clients, employee engagement scores, and stability in the company’s leadership.

Parekh, currently 58 years old, has been CEO and managing director of Infosys since January 2018, and took charge during what was then a tumultuous time for the firm.

Infosys under Salil Parekh

When Salil Parekh took charge as Infosys CEO on January 2, 2018, co-founder and chairman Nandan Nilekani described him as the right person to lead Infosys.

Four years on, it appears Nilekani’s faith has paid off, as Parekh restored stability, growth and confidence in a company that was badly bruised due to conflicts between founder NR Narayana Murthy and then CEO Vishal Sikka. The latter was under fire from the former over issues related to corporate governance and profligacy.

Personality wise, while Sikka was a tech visionary who often dazzled stakeholders with his futuristic ideas, Parekh is more understated, prefers to keep his head down, win deals and execute.

The Nilekani-Parekh combo

Unlike Sikka, what also helped Parekh was the complete backing of Nilekani, who continues to serve on the board as chairman and is learnt to take an active interest in the business. Nilekani has also publicly praised Parekh in the past, complimenting him for “doing a terrific job” of reinventing Infosys and making it resilient.

“Salil has delivered industry leading performance for the Company, and it is in the interest of the Company and its stakeholders to secure the continuity and stability of the current leadership” Nilekani said in the latest annual report.

The COVID-19 crisis helped the company as it pivoted to a delivery model where a majority of its employees started working from home and it benefited from clients migrating to the cloud and stepping up digital investments.

During this period, Infosys outperformed its peers for many quarters, its share of revenues from digital has more than doubled and it won large deals from companies such as Vanguard, Daimler and Rolls Royce. The Infosys stock has risen by over 183% since he took charge.

It clocked a growth rate of 19.7% in fiscal year 2021-22, its highest annual growth rate in a decade as it saw robust demand for its services. This is also the third year in a row that it grew faster than larger rival TCS.

“As we look ahead, we have given a growth guidance of 13-15% which is very strong guidance as we start the year. We see our pipeline in good shape, a very good demand environment and we have recruited in the fourth quarter 22,000 net new employees. And that, among other things, gives us very strong confidence for the future,” Parekh said in an interview to Moneycontrol last month.

While the Nilekani-Parekh combination has worked very well for Infosys in the last four years, the coming year is fraught with risks in the light of the continuing Ukraine-Russia war and fears of a recession in the US, which is Infosys’ largest market.

Brokerage firm JP Morgan recently downgraded Indian IT services sector to 'underweight' and cut the target price of multiples by 10-20 percent.

The brokerage firm says the Indian IT growth was accelerating till the third quarter of 2022 and has begun to slow down from the fourth quarter, which is likely to worsen into FY23 from tougher comps, supply issues and eventually a worsening macro. “With peak sector growth behind, growth deceleration should continue to weigh on sector multiples”, it said in a note.

However, it said Infosys is its top pick among IT services firms. “We would BUY the stock on weakness for its structural strengths and see limited earnings risk from this level given its guidance track record. It stays the sector bellwether and the best way to play the current tech spending super-cycle, in our view,” the report said.