Top-level exits at Infosys have a silver lining

Firm saves Rs 23-25 cr in salaries and Rs 28 cr in payouts for executive council members.

Top-level exits at Bangalore-based Infosys may have led to concern about the company’s medium-term growth, but these have contributed to Executive Chairman N R Narayana Murthy’s strategy of cost optimisation.

Analysts Business Standard spoke to said the top-level exits the company had seen meant salary savings of Rs 23-25 crore (Rs 230-250 million). 

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According to Infosys’s FY13 annual report, former board member V Balakrishnan’s remuneration, including bonus, cash incentives and allowances, was Rs 2.01 crore.

Ashok Vemuri, one of the executives with the highest remuneration, received a package of Rs 4.91 crore.

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Former senior executive Basab Pradhan drew a salary of $505,960 (Rs 2.74 crore, according to the exchange rate prevalent then---54.29/dollar) for FY13, according to a filing on the New York stock exchange.

For Balakrishnan, Vemuri and Pradhan, the combined salary outgo was about Rs 9.7 crore.

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The total compensation for Stephen Pratt, executive council member and head of utilities and resources for North America, for FY13 was $2,129,785 (about Rs 11.5 crore).

“Ashok Vemuri was one of the top-paid executives; other exits that have been announced would draw Rs 1-1.5 crore, or a bit more. Those who have come at their positions draw much less, since as the new ones are younger,” said a senior analyst from a leading foreign stock brokerage.

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For instance, Chief Financial Officer Rajiv Bansal drew a total package of $59,752 for FY13; this included a basic salary of $24,141, bonus/incentives of $13,544, annual compensation of $17,009 and $5,058 in long-term benefits. This was for the period between November 1 2012 and March 31 2013, as stated in the company filing.

The company also saved an additional $4.5 million (about Rs 28 crore, according to Thursday’s exchange rate of 61.9/dollar) on an annual basis by doing away with the executive council. Each member of the council was received compensation of $150,000 annually.

“The impact of these exits is evident through the last two quarters. If you look at the current quarter, the cost of sales, which represents salaries and compensation, is down. This will also impact the operating profits of the company,” said another analyst from a domestic brokerage.

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For the third quarter, the cost of sales was Rs 8,321 crore, against Rs 8,384 crore in the previous quarter, a drop of 0.8 per cent. Selling and marketing expenses, too, show a drop.

“This is a very small part of the cost efficiencies the company reported this quarter. These exits and scrapping of the executive council would mean just about one percentage point impact on margins. You also need to factor in the fact that the company had a net employee addition drop of about 1,800 this quarter. The biggest impact was the offshoring shift and the benefit in sales and marketing of about 90 basis points,” said an analyst.

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Analysts point out that Infosys employee pyramid has also deteriorated over years. By March 09, the base of pyramid, with employees lesser than 25-years in age was 53%, mid-level which had employees in the age of 26-30-years was 32% and the top deck was 15%.

As growth slowed this break up changed too. Base of the pyramid as on March 2013 was 37%, mid-level 36% and top deck at 27% examined a Barclays report.

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On the other hand the recent exits have meant impact on deal flows.

“We understand exits are inevitable in a company going through a transition, the pace and magnitude of exits have been disappointing. We believe the impact of these exits will start appearing in the medium term, unless the transition is handled swiftly and smoothly. We believe revenues from North America (decline of 0.8% qoq) could have been impacted by the departure of senior leaders in this geography – Ashok Vemuri, head of North America and Manufacturing and Sudhir Chaturvedi, head of US BFSI, among others,” said Kawaljeet Saluja, Rohit Chordia and Shyma M of Kotak Securities.