Is Narayana Murthy Eroding Trust in Infosys by Continuing Spat With Board?

New Delhi/Bengaluru: Infosys founder NR Narayana Murthy’s latest spat with the company board over the salary hike given to chief operating officer UB Pravin Rao could impact the image of the company negatively, analysts and corporate governance experts told News18.

Most of them spoke to News18 on the condition of anonymity, given the nature of the boardroom battle roiling one of India’s biggest software services firm.

Shriram Subramanian, head of the corporate governance research and advisory firm InGovern, termed Murthy’s letter as “unfortunate”.

“It is unfortunate that Murthy is still talking about this, but over time, other investors could start ignoring him,” he said, adding “For a company to pay Rs 10 or 20 crore in compensation to anyone — when it is sitting on Rs 40,000 crore — is for its Board to decide. What should be seen is, if the COO is worth it, and is he delivering the results?”

Subramanian pointed out Murthy held just 3% of the shares in Infosys. “As founders, they may have been frugal in compensation packages, but times have changed. Shareholders don't care about how much the COO is paid as long as the company makes money,” he added.

Another analyst who didn’t want to be named said Infosys founders are losing credibility by raising such issues through the media. “He could have taken the formal route and spoken to the board directly instead of raising these issues via the media,” he said.

Infosys in a statement today said that its pay structure for top management was a reflection of the need to attract and retain top quality talent since the company was in a transformative phase.

The statement said, “The company undertook a comprehensive survey of best practices and benchmarked senior management compensation with key Indian and global companies.”

Regarding Pravin Rao’s compensation, Infosys said that the breakup of the pay packet reduced the cash component from Rs 5.2 crore to Rs 4.6 crore, while the performance based component was increased from 45% to 63% of the total compensation.

The board proposal was sent for shareholder approval, since Infosys is a listed firm, and 67% of the shareholders said yes, while 33% voted against the raise.

In an email sent to media organizations, including News18, on Sunday evening, Narayana Murthy questioned move saying that, “The impact of such a decision will likely erode the trust and faith of the employees in the management and the board.”

Former Infosys chief financial officer Mohandas Pai backed Narayana Murthy’s contention that the pay hike to Pravin Rao was not proper.

Pai said that the salary in this case is "spectacular" but the performance is not. Alleging that Infosys' board was "misguided", Pai said the "fundamental problem" was the pay hike given earlier to CEO Vishal Sikka was "without any justification", because of which other executives were also expecting a higher pay.

He said salary levels in India cannot be compared with that in the US.

"I totally agree with Murthy that it was not proper. We should have Indian norm for compensation, we can't follow American norm, we (Infosys) are not an American company," Pai told PTI in a phone interview.

A corporate governance expert told News18 that any conflict within a company had the capacity to affect its image, especially one with the storied history that Infosys boasts of.

The analyst added that when Murthy and the other founders were at the helm Infosys was the bellwether of the Indian IT sector, but currently the firm has slipped and IT is no longer a sunrise industry. The only thing that matters is results and CEO Vishal Sikka’s promise to the board and shareholders of doubling revenue to $20 billion by 2020-21 has takers. And they want to pay Sikka and his team a market remuneration in order to achieve the target.

Another corporate governance expert that News18 spoke to said that the issue highlighted the fact that Indian founders have difficulties in letting go of the companies they set up, even though the company may no longer be “theirs” in terms of public shareholding.

“Narayana Murthy has made a virtue out of thrift and it served them well in the past. But to insist on it all times, even under changed circumstances shows that Murthy’s vision differs from that of the board,” the analyst said.