HUMAN RESOURCE MANAGEMENT

iGATE and the CEO: A breach of agreement

Submitted By
GROUP I
MBA07097 Neeti Benawat
MBA07110 Rama Khetan
MBA07121 Sakshi Jain
MBA07125 Sapan Rajput
MBA07129 Shambhavi Rathour
MBA07137 Shreya Bhatia
 iGATE corporation ltd
TIMELINE
In 2003, iGATE
Global acquired a
controlling stake in Murthy, Murthy's
Quintant Services by may 2013,
In 1993 promoted as incentives
LTD, a company Murthy's got
established CEO & raised
base in started by Murthy president terminated
to $600,000
India and 2 others from iGATE

1986 1993 1996 2003 2006 2008 2011 2012 2013 2013

formed in
1986 in Murthy ,
1996 got Buyout of In March
Pennsylvania, appointed as
listed in Patni, 2013,
director of
US by Sunil NASDAQ bold move Murthy's
iGATE
Wadhwani by Murthy employment
and Ashok agreement
Trivedi amended
again
 iGATE corporation ltd
Lets get into the case......

Murthy's Contribution 18.9 percent

in 2010
Under Murthy’s stewardship, iGATE came a long way: 23.6 per cent

iGATE grew from –0.2 per cent in

in 2010

2006 to 18.9 per cent in 2010

Likewise, return on equity rose
from 1.5 per cent in 2006 to 23.6
–0.2 percent
per cent in 2010 in 2006
1.5 percent
in 2006
 iGATE corporation ltd
Lets get into the case......

Murthy's Termination
In May 2013, Murthy was forced to resign from the organization for
violating iGATE’s policy and employment agreement amid allegations
of sexual harassment.

In return, Murthy contested his termination and filed a lawsuit

accusing iGATE of breach of agreement and defamation.

Murthy maintained that iGATE unjustifiably terminated his contract “for cause,”
which allowed iGATE to withdraw from its contractual obligations to Murthy
and withhold his vested shares, severance payments, and retirement benefits.
 iGATE corporation ltd
Lets get into the case......

Murthy's Past

This was not the first time Murthy faced these

allegations. However, his controversial exit from Infosys
had been overshadowed by his triumphant return to the
industry with iGATE.
iGATE corporation ltd

ROLE PLAY

Murthy iGATE
 iGATE corporation ltd

Let's get into the questions

 iGATE corporation ltd

Discuss the importance of compensation for a

CEO as a strategic tool for aligning a company’s
key talent with the overall business strategy?
 iGATE corporation ltd

Alignment of Individual goals with the

Company's objective acts as motivation.
Incentivizing Individual Achievements as
well as team efforts.
Compensation should be a blend of salary,
equity, and bonuses.

 iGATE corporation ltd

iTOPS (Integrated Technology and Operations) In March 2006, Murthy was appointed a director of iGATE
framework VS the conventional outsourcing Corporation. Soon after, in April 2008, he was promoted to
model. the president and CEO of the corporation.

Acquisition of Patni Computer System (2011) Murthy received a compensation of $8.82 million for 2011—
an increase of 181 percent over the previous year’s $3.14

Patni iGate
million.
Revenue $689 Million $252 Million
Net Profit $134 Million $45 Million In 2011, Murthy received a performance bonus of $880,000
Employee More than against his annual performance-based target of $500,000—a
6910
Strength 16000 recognition of “achieving the targets set by the committee.
Client 282 82
In response to this business strategy, Murthy’s
The operating margin grew from –0.2 percent performance-based incentives were raised to $600,000 in
in 2006 to 18.9 percent in 2010. 2012.

Return on equity rose from 1.5 percent in 2006 The compensation committee also approved an increase in
to 23.6 per cent in 2010. Murthy’s severance notice period from six to 12 months.
iGATE corporation ltd

Amendments in Employment Contract

In March 2013, Murthy’s employment agreement was amended again to award him a
200 percent excess on his annual performance bonus of $600,000 at the compensation
committee’s discretion, based on predetermined performance targets.

He was also able to negotiate an additional health insurance provision in another

amendment made to his agreement on May 1, 2013.

According to this amendment, if Murthy’s employment end, iGATE would pay long-
term health insurance premiums for his spouse and dependents, irrespective of the
reason for termination.
iGATE corporation ltd

How can organizations design executive

compensation to align with business
strategy?
Know your business
Analyze the state of your

compensation program
Meet with senior leadership
Create a compensation philosophy

that supports the organization’s

mission
Communicating Effectively
Examine the employment agreement
between Murthy and iGATE and
highlight the clauses that led to the
dispute between the parties?
 iGATE corporation ltd

Employee agreement, 18th April 2008 In section 6,

under "Senior executive employment According to iGate, its Murthy abides by
agreement". Mr. Murthy sued iGate in termination of Mr. all the company's
iGate sacked its CEO, Phaneesh Murthy. California state court. Murthy was “with policies
Murthy's failure to report his relationship Claims that his cause.”
with a subordinate employee violated termination was not
company's policy. with cause.

Mr. Murthy claims in his case that because Board

members were aware of his contact with the employee
at the time, he did not need to report it, and as a result,
he did not materially breach company policy and was
fired without reason.
The Company invoked its right under : iGATE corporation ltd

Clause 10 (a) (i) wherein the Company had the right to terminate the
employment of Mr. Phaneesh Murthy with plausible "cause".
The Company claimed that Mr. Murthy was in violation of Clause 6 of the
Agreement namely "Policies and Practices". The corporation claimed that Mr.
Murthy violated the law by failing to declare the relationship.

Section 10 (a) (ii) provides an exhaustive definition of cause, elaborating on

the particular conditions that constitute a cause. Severance compensation
would not be paid in the event of a termination for cause. The disagreement
between iGATE and Mr. Murthy arose over the definition of the term "cause,"
the criteria which constitute cause, and whether failure to disclose a
relationship with an employee constitutes grounds for termination.

However, Section 10 (a) (iii) of the agreement made no mention of the

conduct of failing to disclose knowledge of a relationship with the
employee being "cause," which is a serious breach of Section 6. As a
result, the Company invoked Clause 10 (a) to terminate Mr. Murthy for
"cause"
iGATE corporation ltd

Why is it important for organizations to

eliminate ambiguity in employment
agreements with senior executives?
 iGATE corporation ltd

Mr. Murthy has invoked the theory of Parol Evidence,

which provides that after an agreement between parties
has been formed, written, signed, and executed, oral
evidence cannot be used to interpret the contract.

When the agreement is silent on an act of commission

and/or forbearance, the same cannot be construed on
the basis of oral evidence.

 iGATE corporation ltd Clause References

iGATE is relying upon a material breach of Section 6 which talks about a number of rules
and regulations which are to be referenced at the time of determining applicability.

If a contract is ambiguous, the doctrine of contra proferentem applies which

states that in circumstances where question of interpretation of a specific provision
of a contract arises, the interpretation must be held against such party who had
drafted the contract, and in favour of the person who had merely signed.
The employment agreement was drafted by the iGATE and signed by Mr.
Murthy.Therefore, once the question of interpretation of the word "cause" arises,
the interpretation of Mr. Murthy must be held as compared to the interpretation of
the Company as per contra preferentum.
 Course of Action
iGATE corporation ltd

It is utmost that all conditions, necessitates, obligations, right, duties, functions, and
similar acts of commission and/or forbearance must be specifically mentioned in
the contract lucidly, unequivocally and bona-fide. Once the contract is executed the
parties cannot trace back their steps. The terms of the contract are supreme and
unless the agreement prescribes otherwise, the parties must abide by them. The
terms which do not form part of the written contract can neither be read as part of
the agreement nor be used for interpreting the terms of the contract unless
expressly consented to.
iGATE corporation ltd

THANK YOU