Tuesday, October 06, 2009

"Vulgar CEO salaries" in India

Me thinks it was a very innocuous comment by the Corporate Affairs Minister-"no vulgar salaries, please!, made on a Sunday-keeping in times with the general theme of 'austerity" evangelised by the Central government in the last few weeks :-)!

However, it seemed to have stirred a hornets nest-for there have been a variety of responses & reactions in the media and blogosphere-depending on which end of the spectrum the commentator is perched on.

I must confess when I first read about it, I was embarrassed-for I was reminded of a 'faux paus' I had made about 27yrs back -in the early days @ the management college. We were just getting initiated to the jargon and the enormities of the business complexities, and here was this professor who indicated the maximum managerial remuneration -as per Company's Act being about Rs 50,000 per annum. The smartie that I was-(I still shudder) sticking up my hand to check whether it was per month-and immediately there was a lot of snicker!! Believe me, even way back then, with stars in my eyes, I thought it was a poor reward for such a lot of responsibility and accountability. Just to put things in context-those were still days when the best salaries on campus then were in the range of about Rs 12,000 to 15000 pa!! To me-it didn't really seem all that glorious to be a CEO :)!!

One must also be reminded that one had known of senior management professionals paying an income tax equivalent to 97% of their income!! Imagine all the effort-and getting to carry home a pittance?? Did that restrict the motivation of managerial talent of the seventies ? It certainly tested the ingenuity and innovativeness of the Indian brain -to find innumerable ways to find the loopholes in the system...and deprive the govt. coffers anyway!

As I look back, ironically it was our present Prime Minister-who in his avataar of a Finance Minister ushered in the wave of liberalisation -and what we all of us see now- is a fruit of the events that followed. Market forces took over. Companies started paying premium for talent and performance. Not content with the time taken to farm talent within, they started shopping (hunting) outside. Stock options. Globalisation. Flash forward to today-we are in a different world. Especially -keeping an eye on global benchmarking in salaries, coupled with variable compensation and long-term incentives, a crore-mark is really not highly inaccessible for today’s topnotch professional.

I still feel one must be rewarded for initiative, innovation, performance, accountability and responsibility. While our Corporate Affairs minister -indicated a statistical inference of some " CEOs being more than 12,500 times the per capita income in the country"- the same was an aberration-for the Reliance honcho's salary was less than 0.3% of the group turnover!!
Elsewhere -it is reported that there are 'as many as 640 directors of listed companies took home with Rs 1 crore plus in total remuneration for the year-ended March 2009, compared to 570 in the previous year-despite a recessionary year!' One could add a few more thousands , ie senior executives who are not part of the board of directors, and directors of privately-held firms whose compensation details are not in public domain , who took home more than Rs 1 crore last year.

Does it still raise a case for government to reign in the industry?? Is it really imperative for the government to control economic prosperity in the country -by trying to regulate the companies that need to pay such salaries to attract and demand talent. Are our politicians getting carried by the talk 'of capping CEO salaries in advanced western economies, especially in the financial sector' -considering that the governments there did bail out some marquee names?

I am sure we will see more action on the topic!! Though I shall be glad if there is more focus from the government side is given on the 'corporate governance' aspects and to create conditions to promote shareholder activists. And hopefully, top management salaries are best left to shareholders, the ultimate owners of a company, to decide!!


AK Menon said...

Here is an interesting debate interestingly from a couple of the biggies in Indian Search - 'Do Indian CEOs overpay themselves?http://bit.ly/zbJKW

AK Menon said...

Here's another perspective by an erstwhile Corporate Czar http://blogs.timesofindia.indiatimes.com/men-and-ideas/entry/mukesh-s-sacrifice