Golden Parachutes Start to Land in CXO Con­tracts

GLOBAL NORM Sev­er­ance pack­ages more preva­lent in sec­tors like fi­nan­cial ser­vices, tech, ecomm as cos hire top ex­ecs from overseas

The Economic Times - - Companies: Pursuit Of Profit -

In­dian firms pay amount equiv­a­lent to fixed salary for 6 months to 2 years

Global norm is 1-3 years of fixed salary, in­cludes safe­guards for firm Sreer­adha D Basu & Rica Bhat­tacharyya

Mum­bai: De­part­ing In­fosys CFO Ra­jiv Bansal’s hefty sev­er­ance pack­age was one of the cen­tral is­sues in the row that broke out be­tween the com­pany’s founders and its board, but In­dia is far be­hind the west in of­fer­ing so-called golden parachutes to CXOs. How­ever, the con­cept is said to be fast catch­ing on as com­pa­nies in­creas­ingly hire ex­ec­u­tives from overseas. Only 3-5% of In­dian CXOs now have sev­er­ance pay as a safe­guard clause in their con­tracts com­pared with 60-70% of their coun­ter­parts in large US com­pa­nies, ac­cord­ing to nearly a dozen re­cruiters, com­pen­sa­tion track­ers and ex­perts that ET spoke to.

“Most ex­ec­u­tives in In­dia do not have any sev­er­ance clauses in their con­tracts,” said Anan­dorup Ghose, part­ner, tal­ent and re­wards, Aon He­witt Con­sult­ing.

The ex­cep­tions are star CEOs, par­tic­u­larly those from overseas who are in a po­si­tion to dic­tate terms, those who have taken on roles that in­volve a high de­gree of risk, and top tal­ent join­ing com­pa­nies vul­ner­a­ble to takeovers and merg­ers, or fac­ing reg­u­la­tory hur­dles, ex­perts said. A sev­er­ance pack­age acts as in­sur­ance.

De­spite the ker­fuf­fle at In­fosys, sev­er­ance deals are set to rise as more In­dian com­pa­nies look to at­tract global tal­ent and adopt a per­form-or-per­ish ap­proach to­ward CXOs.

Such pack­ages are cur­rently most pre-


va­lent in sec­tors such as fi­nan­cial ser­vices, tech­nol­ogy and ecom­merce, and par­tic­u­larly in star­tups. Such com­pa­nies of­fer CXOs an amount equiv­a­lent to their fixed salary for any­where be­tween six months and two years. In some cases, these in­clude vested stock op­tions. The global norm is one to three years of fixed salary and in­cludes safe­guards for the or­gan­i­sa­tion.

A mid-sized In­dian com­pany re­cently hired a se­nior ex­ec­u­tive at a US multi­na­tional as its CEO af­ter agree­ing to his de­mand for a sev­er­ance pack­age of nearly $1 mil­lion, said Arun Das Ma­ha­p­a­tra, part­ner in charge of Hei­drick & Strug­gles in In­dia. The com­pany found this worth­while as he was a prize catch.

In an­other on­go­ing man­date for a real es­tate firm, Ma­ha­p­a­tra said, the can­di­date is likely to in­sist on a sev­er­ance clause be­cause of the risks as­so­ci­ated with the job. As per­ceived risk rise, so does the sev­er­ance pack­age.

Sev­er­ance for top em­ploy­ees in the tech­nol­ogy and ecom­merce/star­tups sec­tors have started to match global stan­dards, said San­chit Vir Go­gia, CEO of Greyho- und Re­search. “It de­pends on the kind of per­sonal risk the em­ployee is tak­ing, and how much con­fi­den­tial in­for­ma­tion on strat­egy and in­tel­lec­tual prop­erty he/ she knows,” he said.

Ac­cord­ing to Mon­ica Agrawal, se­nior client part­ner for global fi­nan­cial ser­vices at Korn/Ferry In­ter­na­tional, some startup in­sur­ance com­pa­nies have started in­clud­ing sev­er­ance pay in con­tracts.


Some com­pa­nies in In­dia have started adopt­ing “dou­ble-trig­ger change-in-con­trol” (CIC) sev­er­ance ar­range­ments, which are com­mon­place in the west, said Anub­hav Gupta, head, ex­ec­u­tive com­pen­sa­tion, South Asia, Aon He­witt. These come into play in the event of merg­ers and ac­qui­si­tions.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.