Proxy advisory firm IiAS has recommended shareholders to vote the proposal to appoint Vishal Sikka as Infosys' MD & CEO and also fix his annual remuneration at a maximum of Rs42.5 crore. But IiAS is also raising some concerns
Infosys Ltd, India's second largest IT company has called for an extraordinary general meeting (EGM) to ratify the appointment of Dr Vishal Sikka as its managing director and chief executive officer (CEO) and also to fix his annual remuneration at a maximum of $7.08 million or about Rs42.48 crore.
While recommending that shareholders vote for these proposals, proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has cautioned that Infosys and the industry could face new challenges with respect to executive compensation.
"Infosys has been conservative in paying its executive directors. This was applicable for both, promoter and non-promoter directors. Now, with the proposed remuneration for the CEO, there may be internal pressure on the board to raise the compensation for other executive directors. A broader concern with the proposed remuneration is that it is high, compared not just to other Indian IT peers, but corporate salaries in general. This will put pressure on companies to increase their CEO compensations," IiAS said in a release.
Infosys has had problems with succession planning in the past. Therefore, instead of turning the clock back and passing the baton among the company’s founders, IiAS said it believes Infosys needs to invest in professional leadership and put a team in place, that can frame the company’s vision for the future. IiAS said, "Infosys’ decision to appoint Dr Sikka must be looked at as an investment in its leadership that will bear returns in the future. Sure enough, one may question the potential return ratios - but you must first invest."
There has been much debate about Dr Sikka’s remuneration, it is one of the highest for a professional in corporate India.
IiAS said, "Given that more than 60% of Infosys’ topline comes from North America, Dr Sikka will continue to operate from his current base of California, US, and will shuttle in and out of the company headquarters in Bengaluru. Hence, a more comparable peer base will be global counterparts like Capgemini, Cognizant and Adobe where the remuneration levels for CEOs are comparable and in some cases, higher than what has been proposed by Infosys."
"Moreover, above of 80% of his total remuneration, including restricted stock, is variable and based on target achievement. This is a good remuneration practice as it establishes a strong linkage between remuneration and company performance," the proxy advisory firm added.
Infosys’ move to hire Dr Sikka is similar to Wipro’s move to transform itself when it hired Vivek Paul in early 1999, when he was asked to run Wipro's software unit in India. Vivek Paul was then the highest paid executive in India, with a salary of Rs4.95 crore, over $1 million (as per the prevailing exchange rates). Wipro was a $150-million company when Paul took over, and it had all the tendencies of a small, traditional company. Paul has been credited with creating a global business and for much of Wipro's growth into a multi-billion dollar company. "For Infosys too, bringing in a CEO who has worked in a leadership role in a global IT company and has strong connectivity in the sector, is a good decision," IiAS said.