Wipro, a top IT services company in India, generated buzz by offering a generous severance package to their departing CEO, Thierry Delaporte. Yet, this profitable compensation package includes a significant requirement that underscores the intricacies of executive pay and non-compete agreements in the field.

As per The Economic Times report, Wipro will give Delaporte a whopping severance package of Rs 92.1 crore (around $11 million) after his earlier-than-expected exit from the company. Nevertheless, the payment is dependent on Delaporte following a crucial requirement: he must not engage in any job or advisory roles with another firm for twelve months following his formal exit on May 31, 2024.

Clause restricting an individual from engaging in competing activities for a certain period of time after leaving a company.

The requirement for Delaporte's severance package is described in his employment agreement with Wipro. The agreement states that if he is dismissed from his job unjustifiably, the company must give him a payout equivalent to his 12-month base salary at the time of termination. Yet, these payments will stop if Delaporte secures a new job within 12 months or serves as a consultant for any company within that timeframe.

It is common in the IT services industry to provide generous severance packages to CEOs who are leaving, especially if their time in the position is abruptly ended. During his resignation in 2023, Tata Consultancy Services (TCS) approved expenses worth Rs 48 crore for former CEO Rajesh Gopinathan's departure agreement. In the same way, Brian Humphries, the ex-CEO of Cognizant, was given a severance bundle valued at $6.6 million when he left in early 2023.

Reasoning and Standard Practices in the Industry

These large severance packages are typically consistent with the companies' contractual requirements or current industry standards. Their goal is to offer fair financial assistance to executives who have had their time in their positions unexpectedly reduced.