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
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.