This is the first time that any large information technology services company has linked a part of the variable component of salaries of top managers to digital revenue growth. Photo: Mint
Bengaluru: Infosys Ltd has, for the first time, linked incentives of six of its top employees to how much revenue the company generates from digital technologies, underscoring how aggressively chief executive officer Salil Parekh is pursuing growth from newer and more profitable offerings.
This is also the first time that any large information technology services company has linked a part of the variable component of salaries of top managers to digital revenue growth. Starting this financial year, the variable pay of the six Infosys employees will be based on digital revenue growth, in addition to overall revenue and profitability, Infosys said in a filing to the US Securities and Exchange Commission.
By linking pay to digital revenue growth, Parekh is trying to encourage the senior management team to aggressively sell its digital offerings even at the cost of cannibalizing some of its traditional maintenance and infrastructure services. Digital offerings such as automating processes and moving away from a people-led approach may hurt Infosys’s revenue in the near term but are future growth areas.
“I think almost every services player is debating this right now and you will see the introduction of different models and adjustments throughout the next three years as they try to get the incentive system that works best for the team and for clients,” said Ray Wang, founder of Constellation Research, a technology advisory firm.
The six top Infosys executives are chief operating officer U.B. Pravin Rao; chief financial officer M.D. Ranganath; Mohit Joshi, head of the firm’s largest industry segment banking and financial services; deputy chief operating officer S. Ravi Kumar; head of human resources Krishnamurthy Shankar and general counsel Inderpreet Sawhney.
The development comes after Infosys’s board, led by chairman Nandan Nilekani, disclosed the parameters that determine CEO Parekh’s performance-linked pay as part of his annual remuneration of ₹16.25 crore. Parekh’s compensation is linked to the company’s ability to get a higher share of business from digital technologies, build a stable management team and ensure higher returns for its shareholders.
Infosys claims that digital business grew 27% from the year-ago period to $803 million at the end of June quarter. Digital, for now, accounts for 28.4% of the company’s $2.83 billion revenue in the June quarter.
Mumbai-based Tata Consultancy Services Ltd said that digital accounted for $1.26 billion, or 25%, of its $5.05 billion revenue in the same period while Wipro Ltd’s digital revenue accounted for $569.45 million, or 28.1%, of its $2.02 billion revenue in the first three months of the current financial year.
“Think of the link as a proxy for the key leadership team to focus on new revenue sources. It’s their incentive to grow new business. This is one model that some organizations have taken, but not the only approach,” said Wang.
Wipro, Infosys’s cross-city rival, does not intend to link its senior leadership’s variable pay to digital revenue because it believes that digital, despite growing fast, is still less than a third of its total business.
“Not for us,” Wipro president and chief human resources officer, Saurabh Govil said in an interview last week. “All our KMPs (key managerial personnels) are measured by two parameters, revenue and margin, at the company level. Please remember that for all Indian IT companies, including us, more than 70% is still non-digital and less than 30% is digital. So even if digital is growing fast, non-digital business has to be run very efficiently. I don’t believe leaders at the KMP level need to be incentivised like this because people are very clear that an organisation has to do well and it is not limited to any one or two areas.”