CEO Compensations. Case in Point: Infosys CEO compensation

The compensation packages offered to two key officers of Infosys, Vishal Sikka and U.B. Pravin Rao generated a lot of press this summer and even the co-founder NR Narayana murthy weighed in. The topic also came up a few times during the Q&A with shareholders at the recent AGM (my blog)

This is a topic I reviewed in my recent blog ("How ourfascination with CEO packages impacts our compensation"). After the AGM, I continued to reflect on the topic and decided to review the facts presented in the Annual Report. The section on "Employment agreements with Executive Directors" gives specific details of compensation offered to Vishal Sikka and Pravin Rao.

Vishal Sikka’s compensation is about $11 million

• Base Pay $ 1 million
• Variable Pay $ 3 million
• Stock compensation
• RSUs $2 million 
• Performance based equity $5 million

Mr. Sikka also has a Golden parachute that kicks off “in case of termination for other than cause, death, disability or resignation for good reason.” This includes continued payment of severance pay at rate of base pay for 24 months, COBRA / health benefits and accelerated vesting of outstanding equity grants

Pravin Rao’s compensation is about Indian rupees 13 crore (with a fixed Salary Rs 800,00,000 and performance based stock compensation Rs 400,00,000)

These numbers sound rather large but need to be taken in context. These gentlemen run a business that employs nearly 200,000 people around the globe and generates over $10 billion in revenue.

Let us compare these against packages offered to other tech CEOs:

• The software services giant, Accenture reportedly pays its CEO Pierre-Nanterme a total compensation package of about $18.5 that includes base pay of about $4 million and the rest in stock and incentives. Of course Pierre-Nanterme runs a much larger business generating about US$32.9 billion revenue. 
• Satya Nadella, Microsoft's CEO made headlines recently for his mammoth $84 million pay package. 
• According to the confidential sources, Google’s Sundar Pichai’s salary is about $50 million per annum;  and Mr. Pichai’s Net worth is about $600 million  

The arguments for and against large compensations

After the board of directors approved Infosys CEO’s package, Mr. Narayana Murthy was gunning for "corporate governance" and he took to media to voice his concerns about the package There is a bit of socialistic slant in Mr. Murthy’s assertion (reuters)

"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 same arguments – pros and cons – are revived every time there is an announcement of a new CEO taking charge of a public company or a board approval of another CXOs compensation package. Corporate storytellers and journalists with an analytical bent of mind quickly knock out sound-bites like "This CEO’s package is 1000 or 10,000 times that of a Joe/Jane-line worker."

This time it is no different with business-journalist dissecting every angle of COO UB Pravin Rao’s multi-million-rupee package including – dollar-rupee disparity, lower cost of living in India (vs. global packages) etc. Corporate benefits consultants, analysts and academics are also weighing in with an academic and theoretical curiosity.

The current Infosys-COO-package controversy is perhaps a storm-in-teacup that is bound to blow over; but not our fascination with executive compensations. The next time we see an announcement of a large CxO package, similar views and counter-viewpoints will be revived. In the interim, managers will continue to use the arguments learnt from the CxO-package debates while negotiating annual raises of their organization-men (and women - ref my earlier article)

Views on Infosys’ 36th Annual General Meeting (AGM)

Many years ago, during my MBA I learnt about company structures, fiduciary duties and governance, and I studied about the Annual General Meeting (AGM). Over the years I have invested in shares of many public companies in India and the US, and continue to review annual reports (link to my blog), and follow earning announcements of companies I invest in.  I also follow business news with daily updates from the Wall Street Journal and NPR’s marketplace.

However, I hadn’t attended a company’s annual general meeting - until recently. As I am currently in Bangalore, I decided to take the opportunity to attend the 36th AGM of Infosys. It was also an opportunity to hear from fellow small-shareholders in person.

So, what exactly is an AGM? Wikipedia describes it as “An annual general meeting is a meeting of the general membership of an organization.”

I had spent over 8 years at the company in the 2000s and continue to hold INFY stock.  At the time, Infosys still had a “Powered by Intellect, Driven by Values” as its corporate slogan and was a media darling. Hardly any negative news got printed. Over the years the company’s astute PR and media management have eroded and it finds itself in the spotlight for all the wrong reasons – corporate governance issues, visa-fraud investigations, dirty laundry being washed by co-founders in public over CxO compensation, layoffs, impact of visa protectionism etc etc.  

This AGM like many others followed the expected agenda, starting with statements from the chairman of the board, CFO and CEO. Of all the leaders, Vishal Sikka came across as an articulate Stanford professor, with his discourse on emerging technologies and their impact on ‘businesses’ of technology services that Infosys is in.  

Infosys Board members address Shareholders

After the prepared talks by members of the management, it was time for shareholders to get on stage. As expected, their perspectives and points being raised were all over the place and most of them were happy to just have their two minutes of fame under the spotlight. Many picked on a favorite Infosys anecdote from the media and paid homage to the leader from the past - Narayana Murthy – and the ‘great’ work Vishal Sikka and his team were doing (under the ‘challenging’ circumstances). 

Infosys' small-shareholders  queue to ask questions

Following were the most common themes of the questions and comments  

·         A few shareholders asked for share buybacks like what TCS and other service firms had announced recently

·         Shareholders repeatedly pointed out the management’s poor track record in Public Relationship (PR) management, musing loudly if a better PR would address the ‘noise’ coming from the media. Many sounded frustrated that the management was spending all the energy in addressing trivial media ‘concerns’ when it could be utilizing its energies more productively

·         Some pointed asked about the role of Public Relationship (PR) management is addressing communication with co-founders who no longer had a seat at the board.

In recent times, I have moved to reviewing digital copies of Annual reports. At the meeting, I picked up a printed copy of the 240-page Annual Report, taking me back in time when printed ARs were the primary source of corporate information.

We live in an age of near-instant dissemination of news and opinions. Many of the topics including the presentations by Infosys executives were common knowledge even before today’s AGM. Back in the day, the AGMs served a purpose – getting corporate stakeholders, shareholders and the board of directors to engage with each other. The reality is that much of the shareholder engagement now, especially with larger shareholders happens behind the scenes.

Bottomline: Just as the printed Annual reports have given way to digital copies, the day may not be far off in the future when these Annual General Meetings go digital and virtual. 

Some south-Indian food for thought

Response to @JeffBezos request for ideas

Here was a recent tweet from Jeff Bezos, founder of Amazon.com

Request for ideas… pic.twitter.com/j6D68mhseL

— Jeff Bezos (@JeffBezos) June 15, 2017

My response follows

---

Mr Bezos,

I commend you for the attempt to crowdsource ideas for philanthropy.  I will focus my response on a one word suggestion:

Population

As an Indian-American who spent much of his formative years in India, I had the opportunity to experience and observe the impact of burgeoning human population on our environment. During the past decade, I had the good fortune of living and working in a dozen countries across three continents and continue to reflect on the issues surrounding the population growth

Address a growing Population: Why this issue?

With over 7.2 billion people inhabiting this planet, and over 2.5 billion concentrated in Asia, there is a tremendous pressure on mother earth.

Let us set aside academic research and empirical studies for a minute. Just land at any airport in South-east Asia and take a ride into the city and you will see teeming masses of people.

There are several solutions to address the problem, but each requires tremendous resources (which your Philanthropy can help with) and a strong collaboration between Business, Governments, and Societies.

Why right-now?

You state that for philanthropy, you are drawn to “the other end of the spectrum: the right now.” The problem of over-population and population growth can be solved ‘right now.’ Just a couple of examples to illustrate the point:

• The mother of four or five girls being forced to ‘try’ again for a boy will be highly thankful if her in-laws and husband are educated on the potential of a girl-child.
• Any attempt to slowing the growth of population will be visible in the short-term and benefit societies in the long term. For example, the Chinese government was able to demonstrate it with the ‘one child’ policy in a generation.

Bottomline: Philanthropy, should follow the old adage “Give a man a fish….”

Addressing the issues surrounding a growing population will help us ‘teach humans to fish…. and feed generations to come’ 

Enterprise Architecture Q&A : How important is it for an Enterprise Architect to have business domain knowledge?

Here are a few Questions on Enterprise Architecture that I answered recently.

How important is it for an Enterprise Architect to have business domain knowledge?

There is no doubt that an Enterprise Architect must have EXCELLENT technical knowledge. Usually an Enterprise Architect is a person who has worked as Application Architect in the past, sometimes in various applications for business domains such as Telecom, Finance or Insurance. In this role, the person concentrates on using technical skill to build an application. This person is unlikely to concentrate on building business domain knowledge (also called functional knowledge) and only learning it to build the application.

Meanwhile a Business Analyst (BA) concentrates only on gaining business domain knowledge. A Business Analyst provides the business input required by the Application Architect. 

Does an Enterprise Architect need to have excellent knowledge of business domain? If so, how can this person gain it they have been working as an Application Architect in the past?

Yours is a multi-part question.

Enterprise architects could come from an IT background, in which case the EA will have “have EXCELLENT technical knowledge” (as you mentioned.) However, many Enterprise Architects also come from management consulting, Business Partnering and from business functions. Such Enterprise Architects will have extensive business domain knowledge.

Let us look at your other questions:

• Does an Enterprise Architect need to have excellent knowledge of business domain?

Yes, a knowledge of business domain certainly helps. However, the term “excellent” is a bit of a misnomer, especially for large, complex businesses with many lines of business or operations across geographies. In such organizations, breadth of knowledge of business operations and domains will help more than an endless pursuit of depth in all domains

• If so, how can this person gain it they have been working as an Application Architect in the past?

When I was hired as an EA for a multinational Ag-Chemical company, I had little knowledge of the complex supply chain of chemicals (pesticides, herbicides and insecticides) or the complexities in GMO or breeding of seeds. (Check out my blog on the topic)

I began attending appropriate training and 101-orientation sessions on the business -business models and continue to learn during my engagements with functional stakeholders.

---

Which is the best EAI tool?

If you can tell me the best Car I can buy, then I can advice you on the ‘best EAI tool’

If you think I am being cheeky, think again. Buying a car is highly context sensitive. Unless you know me and my needs, and requirements, your advise is going to highly subjective and useless!

In the same way, your adviser will need a lot of information on your context, landscape and requirements before s/he can suggest the ‘best EAI tool’ for your organization’s needs!

---

Can you effectively practice as a Enterprise Architect or a Solutions Architect without the ability to code?

Even my 7-year-old is ‘learning to code’ at school. So I will assume the OP implies “ability to write production ready code using the processes, tools and techniques used in the organization.” Using this assumption, my answer is simple:

• Enterprise Architect - Yes, you can effectively practice as a Enterprise Architect without the ability to code.
• Solutions Architect - A qualified Yes for this role too.

Why do I say this?

Enterprise Architects could come from any of the BIDAT domains and only those from an ‘A’pplication background may know to code. Even assuming an EA came from an application development background with hands-on coding experience, s/he may not be proficient in the newer languages and programming paradigms.

Executives who let their Enterprise Architects roll-up their sleeves and code are not making the best use of their (the EA’s) talent.


Solutions Architects are expected to bring a depth of the Application life cycle including development and integration. Many of them may also have a ‘coding’ background, but the ability to visualize and communicate solutions is more important than the ability to code. In smaller organizations, it is not unusual for the SA to sit with developers to prototype and validate solutions.

Why should IS executives continue to watch today’s Tech Oligopoly?

Walt Mossberg, the popular tech columnist who wrote for the Wall Street Journal, Recode and The Verge announced his retirement in a final column (link) that reflects on the significance of some of the recent technology trends. In a section titled “The oligopoly” he highlights that much of the new technology that “we and others can learn about and report about, is coming from the giant companies that make up today’s tech oligopoly — Apple, Amazon, Facebook, Google and Microsoft.”

Mossberg isn’t alone in this prognosis. Farhad Manjoo in his New York Times column titled “Tech’s Frightful Five: They’ve Got Us” also picks on the “frightful five” to drive home a similar point. At first glance, terms like “Oligopoly” and “Tech overlords” sound a bit strong and ominous, but they certainly make one sit back and take note.

Image from New York Times

Four out of these big-five have a stronghold on my digital life. I began thinking about this and realized that like many other consumers, a large part of my tech spend and digital-time pass through these big-five. Much of my eCommerce spend is on Amazon.com and its global sites. To be fair, I begin showrooming for purchases and actively window-shop on other sites. In many cases, I eventually find myself back at Amazon – price and service does matter! For my work and after-work digital activities, I alternate between my Microsoft Surface and iPad. Most of my personal data is backed up on Google’s cloud and my personal blogs are hosted by big-G. MS Office is still my go-to choice: I have tried other SaaS/OpenSource Office solutions, but none can come close to the real deal. I alternate my search between google and bing. I am less active on Facebook; and prefer Microsoft’s LinkedIn for my daily Dopamine fix.

Of course, like many consumers, I continue to explore digital platforms going beyond the reach of these five, for more specialized needs. Taxact has me on the hook for my federal tax returns and eBay and craigslist for niche shopping. For my travel, I start with Google Flights but switch to individual airlines, hotels and Uber.

Does the ‘Tech Oligopoly’ extend into corporate IT too?

In the late nineties, Microsoft began expanding into the corporate IT segment with its desktop, server and database solutions. Its Azure platform continues to be number-1 or number-2 in Public cloud adoption, counting many Fortune-500 and global organizations as its clients. Amazon recently began announcing its AWS cloud earnings, which at $5 billion is more than the sales of many other tech companies. And Google also continues to slowly expand its public cloud footprint in the corporate world.

Apple has been focused on consumer digitization space, but with most large organizations adopting some form of BYOD, iPhones and iPads are now part of corporate uniforms. Facebook has primarily been focused on social networking among individuals, not corporates.

These Tech-Oligopolies have also been investing billions of dollars on Research and Development (R&D) in niche technology areas. Last year, Google CEO Sundar Pichai proclaimed a move from mobile first to an AI first world. The big-five continue to lead with innovations in the field of Artificial Intelligence (AI), Virtual and Augmented Reality (VR, AR), and machine learning.

The innovative startups and entrepreneurs in this space are being closely watched and many are being incubated by the-big five. And the most promising startups are being actively pursued and bought-out by big-five to feed their voracious R&D demand.

What does this all mean to corporate IT?

• Presence of the oligarchs can reduce a consumer’s negotiating power (Business 101): This is already visible in the public cloud space where CIOs, IS executives and their procurement teams are wringing their hands over the ‘rack rates’ being offered by the big-three – AWS, Azure and Google. To be fair, the public cloud offerings are starting to look so similar – with high SLAs, geo-location and availability of vendor tools and service provider ecosystem – that discounting from standard rates may not even make sense.  
• Not all corporate IT applications are suitable to move to the public cloud. A share of corporate portfolio will continue to be hosted in dedicated data centers or considered suitable for VPC, IaaS or PaaS hosting. This is where much of the negotiations are now focused. The lowering cost of public cloud has certainly put pressure on service providers.
• Emerging Technologies. Review of annual reports indicates that the big-five plan an annual spend of nearly $60 Billion on R&D, much of it on emerging technologies, techniques and tools in areas like AI, VR, Big-data and analytics, and blockchain. Some of the innovations at these companies continue in stealth mode, and much of it is being used to enhance their ‘backend’ capabilities. However, researchers at Google, Microsoft, Facebook and others are approaching their R&D with academic rigor by periodically publishing their findings, and collaborating actively with open source communities. (link: research out of Google, Microsoft, Facebook) They are even pushing some of their AI and analytics tools as cloud based services, hoping early adapters will contribute to the alpha/beta-testing efforts.

Corporate IT leaders and their business counterparts are observing and learning from innovations coming from the big-five. Some CIOs and their teams are proactively engaging their business stakeholders driving corporate digitization initiatives by piloting AI, VR or blockchain based use-cases.

Bottomline: Corporate Enterprise Architects and design teams should actively seek opportunities to leverage the platforms and tools from big-five for low-cost pilots and proof of concepts.

[Reposted from my LinkedIn Pulse post]

Are the reasons Donald Trump gave for withdrawing from Paris climate deal valid?

President Trump’s decision to yank America out of Paris climate deal shouldn’t surprise many of us who have heard his election-time rhetoric.



 Whether you believe in climate change (or not), a few things to keep in mind:

• The deal was signed by President Obama using his ‘Executive powers’ and didn’t need the support of US lawmakers and Congress.
• President Trump, using the same ‘Executive powers’ has reversed his predecessor’s decision.
• Such reversals of executive actions happen all the time, although they may impact a few people and smaller issues like actions on a few immigration issues.
• Such a sweeping reversal by a major economic power can unravel the Paris climate agreement

Is this going to be the end of the war on climate-change? If you believe – like Mr. Trump – that climate change is a hoax, this reversal is no-big deal. For the rest of us believers, and for future generations on mother-earth, it is really a big deal!
Will the pullout of Paris deal lead to more American jobs? The facts on this are clear as mud
Bottomline: There is an old adage in business consulting – if you can’t convince them, confuse them.
We are surely confused and scratching our heads; but make no mistake. Mr. Trump is an extremely shrewd man. This move is sure to polarize Americans further and confuse them on issues like climate change. More importantly, it will distract us from issues like the economy, healthcare, job creation, the investigation over Russia and the firing of FBI director.