TechM’s next CEO to get ₹46.8 cr package

The current CEO, C.P. Gurnani, earned ₹674.5 crore in remuneration between 1 April 2013 and 30 March 2023, largely on account of stock options exercised over the past decade, according to Mint’s analysis of company filings. Gurnani still owns 7.6 million shares or 0.78% of Tech Mahindra, as of 31 March 2023, which are worth ₹836.7 crore at Thursday’s closing share prices.

Joshi, who will take over from Gurnani as Tech Mahindra’s managing director and CEO on 19 December, has a fixed annual salary of £622,600 and a variable pay of £622,600. With the first-year variable pay guaranteed, he is assured of receiving ₹13.14 crore. Joshi stands to make an additional ₹4.6 crore in annual performance bonus, which is about 70% of yearly variable pay, if the company meets growth targets set by the board.

Joshi joins Tech Mahindra from Infosys Ltd, where he was president of the company and head of banking, financial services, and insurance ( BFSI), healthcare, and life sciences.

In addition to the ₹7 crore as a joining bonus, Joshi also gets a one-time $3.5 million in stocks, 60% of which will be vested in his first year. This implies he will get ₹12.41 crore in stocks in his first year. Finally, Joshi will get up to $3.5 million in stock option grants every year, vesting in equal instalments over three years. This translates to ₹9.6 crore in the first year, bringing his total compensation to ₹46.82 crore in the first year.

“We would term the amount as a bit excessive, but the more important part and something which the company should have disclosed is the metrics basis which the CEO gets the annual performance bonus," said the head of a proxy advisory firm on condition of anonymity. “Most IT firms disclose these metrics, and so it is disappointing to see Tech Mahindra not share the metrics."

If a CEO’s remuneration as a percentage of the company’s revenue is taken, then Joshi takes the top position on the podium. Joshi’s remuneration is 0.093% of Tech Mahindra’s $6.1 billion in revenue. Wipro CEO Thierry Delaporte’s ₹83 crore in salary is 0.089% of the company’s $11.16 billion in revenue, while C. Vijayakumar’s promised remuneration of ₹88 crore is 0.085% of HCL Technologies’s $12.58 billion in revenue. The remuneration of Salil Parekh and S. Ravi Kumar is 0.037% and 0.036% of the $18.1 billion revenue of Infosys and $19.4 billion in revenue at Cognizant Technology Solutions Corp., respectively. Tata Consultancy Services Ltd paid ₹29.16 crore or 0.012% of its $27.9 billion in revenue as salary to its former CEO Rajesh Gopinathan, who K. Krithivasan succeeded in June.

Shareholders voted on the remuneration of Joshi at the company’s annual general meeting on Thursday after the company shared the details in the AGM notice.

Although Thursday’s voting results are yet to be published, at least two foreign money managers voted against the resolution seeking shareholder approval on Joshi’s appointment as CEO.

“The director remuneration plan does not meet our guidelines," said British Columbia Investment Management Corp., a Canadian fund that manages $200 billion in assets under management, when it voted against Joshi’s appointment as CEO. Canada Pension Plan Investment Board, with $423 billion in AUM, also voted against the resolution, according to filings reviewed by Mint.

An email sent to a spokesperson for Tech Mahindra seeking comment went unanswered.

On Wednesday, Tech Mahindra reported its weakest set of earnings in a quarter since the company went public in 2006.

Dollar revenue declined sequentially by 4% to $1.6 billion in the April-June quarter while operating margin crashed 440 basis points sequentially, from 11.2% at the end of the March quarter to 6.8% at the end of the June quarter.

The management attributed the weakness to the company making a provision for a client that went bankrupt and many of its telecom and communications clients holding back on tech spending.

But some analysts remained unconvinced.

“The problems at the company were in the making for a few quarters. Now even though the company maintains it will improve from now, there is no clear roadmap by when it will recover and what is the target for profitability or revenue growth," said a Mumbai-based analyst at a domestic brokerage.

“We think the task for the incoming CEO is to bring back both growth and margin in the medium term," Abhishek Bhandari and Krish Beriwal, analysts at Nomura, wrote in a note dated 26 July. “We believe Mr. Joshi’s strategy is likely to focus on: 1) simplifying operating structure to reduce costs and enhance agility; 2) increasing BFSI vertical revenue; and 3) large deals with good margin profile. We expect him to articulate his detailed strategy in the next two quarters."

Tech Mahindra’s high compensation to CEO and senior management team comes even as its workforce shrank 10.5% or 15,615 in the last nine months.

The company had 163,912 employees at the end of 30 September last year, and since then, its workforce has declined, with the company ending with 148,297 employees at the end of 30 June.

Dismal growth, poor profitability, a shrinking workforce, and the management not giving a clear roadmap on when it expects recovery, impacted analysts’ sentiment.

Going into the first-quarter earnings announcement on Wednesday, 21 analysts had put a buy on Tech Mahindra, 11 had recommended a sell, and 13 had a hold rating.

By Thursday afternoon, an equal number of 16 analysts had a buy and sell recommendation, while 12 had a hold rating.