How the Infosys founders and old timers amassed huge wealth

Newsroom24x7 Network

Bengaluru: N R Narayana Murthy is bitter and annoyed as he has gone on record questioning the quality of governance in the Indian IT giant Infosys, the company he founded in the ’80s.

The founder and the single largest shareholder (3.44%) of Infosys, Narayana Murthy has been in the news for his continued differences with the company’s management. Recently, the Infosys Chairman R Seshasayee had stated publicly about the assurance he had received from Murthy to the extent that instead of airing their grievances publicly they should resolve internal matters within the company.

This commitment notwithstanding, Murthy has now questioned the quality of governance in Infosys. The fresh crisis has erupted after the total compensation of Infosys COO U B Pravin Rao was raised this past weekend to Rs. 12.5 crore – a straight hike of 35 per cent. Questioning the “fairness in compensation”, Murthy pointed out that about 24 per cent of the public institutions and 67 per cent of public non-institutions had voted against the resolution for compensation hike.

Last year also a resolution was passed increasing Infosys CEO Vishal Sikka’s salary by about 60 per cent. The former company CFO Rajiv Bansal was also given 30 months’ severance pay when the norm for all others is 3 months.


Newsroom24x7 Insight and a Critique of Infosys 

Narayan Murthy and founders and the old timers at Infosys are also in the line of fire and have been accused of always misleading people about compensation. The charge against them is that they amassed huge wealth in shares of Infosys and salary for them meant nothing.

According to those in knowledgeable circles, the dividend they received each quarter was many times their salary. So they could afford to pay themselves one-third of market rate and then use that as a point of reference to pay all employees about 50 per cent of what they deserved. According to an Infosys associate, There was a stage when Infosys growth had dropped by a few percent, the management had then used the prevailing scenario as an excuse to freeze salary but it did not stop them from hiking dividends by 100 per cent and in the process the newer employees were on the losing end while the  the founders and the old boys club gained handsomely.

A common practice among the old timers has been to ask for the  employee number and a low employee number meant that the employee had become rich merely because he had joined the company during its earlier days.

The main strength of Infosys lay in the fact that they knew what the clients wanted and were professional in dealing with them. They delivered on time, under budget, and offered good quality. These intrinsic qualities were missing in most other Indian companies.

An IT industry veteran remarked: “What cannot be lost track of is that all IT industry founders are rich because they paid meager amounts to the engineers from India and charged their US clients money at the global asking rates. The difference helped them in making their billions whereas the gullible have kept thinking they were some sort of geniuses.”


 

Narayana Murthy has shot a mailer to the Media after the COO’s salary hike stating:

I have lots of affection for Pravin. Let me state you the facts.

I recruited Pravin in 1985 and had nurtured him throughout my stay at Infosys since then.

He had been sidelined. He was not even a member of the Executive Council at Infosys in 2013 when I came back. Kris (Kris Gopalakrishnan, co-founder), Shibu (S D Shibulal, co-founder) and I encouraged him, elevated him to the board, and made him the COO when we recruited Vishal as the CEO. So, this abstention has nothing to do with Pravin.

Those of us who have always stood for fairness in compensation and practiced 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.

I believe in striving towards reducing differences in compensation and equity in a corporation. You may not know that my Infosys salary at the time of the founding of Infosys was just 10% of my salary in my previous job. I ensured that my younger, co-founder colleagues got 20% higher salary over their salaries in their previous job even though I was 7 levels above them in my previous job and was 11 years older than them. I gave them huge equity compensation the like of which has never been replicated in this world. So, this abstention comes from somebody who has walked the talk.

I have always felt that every senior management person of an Indian corporation has to show self-restraint in his or her compensation and perquisites. He or she has to fight for maintaining a reasonable ratio between the lowest salary and the highest salary in a corporation in a poor country like India. The board has to create a climate of opinion for such a fairness by their actions.

This is necessary if we have to make compassionate capitalism acceptable to a majority of Indians who are poor. Without compassionate capitalism, this country cannot create jobs and solve the problem of poverty.

Experts tell me that capitalism may come to an end in the not-so-distant future if the current corporate leaders do not heed this advice in India.

Further, giving nearly 60% to 70% increase in compensation for a top level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6% to 8% is, in my opinion, not proper. This is grossly unfair to the majority of the Infosys employees including project managers, delivery managers, analysts, programmers, sales people in the field, entry level engineers, clerks and office boys who are toiling hard to make the company better. The impact of such a decision will likely erode the trust and faith of the employees in the management and the board.

With what conscience can a decent person like Pravin (a man schooled in Infosys values for over 30 years) tell his juniors that they should work hard and make sacrifice to reduce cost and protect margin? I have got so many mails from these people asking whether this resolution is fair. No previous resolution in the history of the company has received such a low approval.

Finally, given the current poor governance standards at Infosys, let us also remember that these targets for variable pay may not be adhered to if the board wants to favour a top management person.”

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