When pay ceiling catches up with IT firms' stock-rich CEOs

Mphasis became the second mid-cap IT services firm to seek shareholder approval after Persistent Systems Ltd raised the remuneration for incumbent boss Sandeep Kalra from 5% to 21%, also because of share-based pay.

For now, Rakesh’s ₹104.8 crore remuneration is 5.63% of Mphasis’s net profit, while Kalra’s ₹388.6 crore remuneration is about 20.84% of net profits. At Sonata Software Ltd, former CEO Samir Dhir’s ₹11.4 crore was 2.5% of profit, while Sudhir Singh’s ₹36.1 crore salary in FY25 was 4.5% of Coforge’s profit in that year. Coforge is yet to release its FY26 annual report.

The remuneration in these instances includes realization from shares that the CEOs sold in a fiscal year besides salary, allowances, bonuses, and other components of their annual compensation. Some of these shares may have vested over several years, but encashed in the said year.

Mphasis said it needs shareholder approval because Rakesh has more accumulated shares that could be encashed.

“If the stock options and RSUs (restricted stock units) granted in separate financial years are exercised collectively in a single financial year, the perquisite value of such exercise, aggregated with other components of his remuneration, may result in aggregate remuneration payable to Mr Nitin Rakesh exceeding 5% of the net profits of the Company,” Mphasis said in a disclosure on 20 July.

Mphasis had appointed Rakesh in 2017. Over the last nine years, he has been rewarded with employee stock ownership plans.

In the case of Persistent, Kalra’s ₹388.6 crore remuneration last year comprised ₹22 crore cash and ₹366 crore in share-based compensation through exercise of stock options. Kalra received many of these shares over the years after he was appointed CEO in 2020.

Two key factors have prompted these companies to seek shareholder approval.

Firstly, accounting rules govern how companies recognize these stock units, often at grant value, over the vesting period or when the CEO becomes eligible to buy the stock unit. Subsequently, the same shares, when sold by the CEO, are counted as part of the remuneration.

“The Esop ecosystem has different dimensions. For listed companies, Sebi's (the Securities and Exchange Board of India) Esop regulations need to be followed, which amongst other things requires a special resolution of shareholders; in relation to overall compensation for companies (listed or otherwise) it needs to be within the limits specified in Schedule V of the Companies Act,” said Ketan Dalal, managing director of Katalyst Advisors.

“The company also needs to follow IndAS 102, which requires a charge of Esop cost through the profit and loss account over the vesting period," Dalal added. "From a taxation standpoint, insofar as the company is concerned, the issue of whether the Esop P&L (profit and loss) charge is deductible or not has been a matter of controversy, but the trend of judicial opinions is in favour of granting that deduction.”

Significantly, Mphasis and Persistent’s net profit growth has underperformed the gains in their share prices.

Rakesh took over as CEO of Mphasis on 29 January 2017. Between 29 January 2017 and 22 July 2026, Mphasis shares have jumped almost 300%, or four times. On the other hand, between 31 March 2017 and 31 March 2026, its net profit has risen 135%, or a little more than doubled.

“One of the reasons that Mphasis is seeking shareholder resolution could be that the company’s net profit growth has lagged mid-cap peers since their CEO took over,” said Amit Chandra, vice-president at HDFC Securities.

Similar is the case for Persistent Systems. From the time Sandeep Kalra was appointed chief executive on 23 October 2020, the company's shares have jumped almost nine times, while net profit has jumped 448%, or five-and-a-half times between March 2020 and 31 March 2026.

On the other hand, the net profits of other mid-caps in the space, Coforge and Sonata Software, have outperformed the share price returns under their incumbent CEOs.

For Coforge, its share price has doubled between 19 January 2018, when Sudhir Singh took over, and now. And between 31 March 2018 and 31 March 2026, the net profit has jumped 455%, or five-and-a-half times.

And at Sonata Software, Samir Dhir was chief executive from 8 April 2022 to end May this year. Between 8 April 2022 and 22 July 2026, the company’s shares fell 1.6%, while its net profit jumped 23% during this time. His tenure as chief executive ended in April, when he was replaced by Rajsekhar Datta Roy.

Investor worries

The companies' proposals for higher CEO remuneration have not gone down well with all investors.

Last July, a fourth of institutional investors in Persistent opposed Kalra's revised compensation. The resolution was approved with 87% overall support from shareholders, thanks to promoters, who own 30% of the company. One such investor to oppose was Legal & General Investment Management (LGIM), the UK’s largest fund manager, managing $1.5 trillion of assets.

“A vote against is applied as LGIM expects all incentive plans to be capped either as a percentage of salary or a fixed number of shares. A vote AGAINST this resolution is warranted because: - The executive's overall estimate pay quantum is aggressively positioned in comparison to industry peers of similar size and scale of operations,” LGIM reasoned, according to filings reviewed by Mint.

On Mphasis, at least two proxy advisory firms, Institutional Investor Advisory Services (IiAS) and Stakeholder Empowerment Services, have recommended shareholders should reject the resolution.

“The company must disclose the detailed performance metrics that determine his bonus and vesting of stock options. While we support his reappointment, we do not support his enabling remuneration terms without an overall cap. We do not support the resolution,” IiAS said in a note to investors on 9 July.

In response to Mint's emailed queries, an Mphasis spokesperson said the proposed remuneration framework for its CEO is consistent with its policy. The annual salary, variable pay and stock compensation given remain within 5% of the company's net profit, it said. Reported remuneration may exceed that threshold only if the restricted stock units granted across different fiscal years are exercised in a single year, with the resulting perquisite value recognized in that year.

"There has been no proposed increase in the target annual bonus, which remains unchanged from the level approved by shareholders at the time of his previous reappointment in 2021," the spokesperson said. The company added that the bonus remains performance-linked and variable, with payouts over the past four fiscal years ranging from 57% to 106% of the target bonus.

Mphasis also said the AGM resolution does not contemplate or approve any new Esop or RSU grants.

Emails sent to Coforge and Persistent Systems went unanswered. Sonata declined to comment, citing its silent period.

Jas Bardia

Jas Bardia is a Bengaluru-based business journalist covering India’s information technology (IT) services sector and Global Capability Centres (GCCs). Known for his investigative depth and attention to detail, Jas has a knack for breaking stories on leadership shifts, high-stakes deals, and evolving industry trends long before they hit the mainstream. If the news is anything IT-related, chances are this author has broken it. Before joining Mint in November 2023, Jas honed his financial reporting skills at Bloomberg News in Mumbai, where he covered bonds and currencies following his graduation from the Asian College of Journalism. When he isn’t chasing his next exclusive, Jas is likely scouting the city’s newest culinary spots, cool events, or is immersed in the electric atmosphere of a Bengaluru FC match at the Sree Kanteerava Stadium. Jas has an eye for detail, an ear for history, and a weakness for a great cologne, and values a good conversation as much as a good lead. If you want to talk about your favourite war movie, funny drunk stories, or a supposed “scam”/wrongdoing in a company, get in touch with him at jas.bardia@livemint.com.

Varun Sood

Varun Sood has been a business journalist writing on corporate affairs for the past 17 years. He currently oversees corporate coverage, including information technology (IT) services, aviation, auto, metals and mining, and conglomerates at Mint. He started as a reporter at Business Standard in 2005, after a short internship at the Economic and Political Weekly. Having worked across newsrooms in Delhi and Mumbai, including at DNA, the Financial Times, and the Economic Times, he is now based in Bengaluru. He is most proud of his work over the last decade at Mint, including writing about the rise and fall of some CEOs at Infosys, TCS, Cognizant, and Wipro. His first book, “Azim Premji: The Man Beyond the Billions”, was published by HarperCollins in October 2020. These days, he is spending more time reading annual reports and analysts' transcripts. Varun’s two pet peeves are access journalism and the dying art of interviews with business leaders. If you think there is something wrong inside your company or there are problems with corporate governance that you'd like to highlight, email him at varun.sood@livemint.com.