High rising salaries of CEO’s not conducive for industrial relations

High Salaried CEOs setting a bad example? Labour Law India articleHere is a hard fact that is with regard to fat salaries in United States of America. President Barack Obama was outraged that Wall Street firms paid out US $18.4 billion in bonuses to executives, despite receiving multi-billion dollar bailouts from the government to save the companies from collapse in the face of the worst financial crisis in decades. But it is not confined to the U.S. Many other countries like India and China are also facing the similar problem.

President Obama put a cap of US $500,000 on Wall Street executives’ pay. The Chinese government has also drawn up rules and regulations regarding recompense for top executives. Once the regulations are approved, executive salaries will be restricted by the recipient’s position in the company, average salaries across the industry, and appraisal by the Ministry of Finance.

India stands on a different footing. There is no doubt that the fundamentals of Indian economy are strong and that was the reason that it could withstand the tsunami like global downslide. In India the roof hitting salaries of top executives have caused many heart-burns. And there are genuine reasons. Any mismatch in the work and imbalance vis-à-vis the payment to other employees is unjustifiable by every stretch of imagination.

A few years ago the Prime Minister of India e la American President had asked the top executives to cut their salaries to set an imitable example for mid-level executives. Some have heeded his advice but others did not. Some top executives and CEOs also felt the pangs and pricks of conscience and followed suit but the majority remained insensitive to it.

This is the time when the culture has to be inculcated and the wanton profligacy must be stopped otherwise; it would set the bad example to the general detriment of the human resources in particular and the society in general.

According to a survey, Chief executives of India’s biggest companies continue to reel in much higher salary increases than their employees. Last fiscal, the CEOs of top companies earned 68 times the average pay in their companies, up from 59 times average pay in 2008-09, reveals a study.

Excessive management remuneration has been a sensitive topic of public debate in the US and the UK and even the Indian government has expressed concerns about it. Although some Indian CEOs and managing directors did see a decline in their total compensation in 2008-09, as the economic slowdown brought down one component of their remuneration directly linked with profits, the absolute level of compensation remained high.

Jindal Steel & Power executive vice-chairman and MD Naveen Jindal took home more than 2,000 times the average pay at the country’s most-valued steel firm. The Member of Parliament, who represents Kurukshetra constituency for the ruling Congress Party, drew a pay packet of Rs 48.98 crore (excluding Rs 20.35 crore paid as arrears for the previous year and Rs 42 lakh as salary advance) for the year ended March ’10. Sun TV chairman and managing director Kalanithi Maran, who shared the spot of second-highest paid corporate executive in India along with his wife last fiscal, each drawing Rs 37 crore, earned 1,760 times the average pay of a Sun TV employee.

While some CEOs are drawing eye-popping amounts, there are companies where the gap between the chief executive and the average employee salary is modest. For instance, Infosys CEO S Kris Gopalakrishnan’s last year’s pay packet of Rs 1.01 crore was just about nine times the average remuneration of an Infoscion.

In contrast, rival IT services firm Wipro’s chairman and MD Azim Premji earned 93 times the average compensation paid to a Wipro employee, thanks to over five times jump in his total remuneration to Rs 7.8 crore for the year ended March ’10. The least unequal compensation was for infrastructure finance firm IDFC where CEO Rajiv Lall took home just over three times the average paid to the employees, most of whom are senior bankers and consultants. However, including IDFC’s subsidiaries where the average salaries are much more modest, the gap expands.

Top executives of the large public listed companies earned an average compensation of Rs 3.73 crore, compared to Rs 5.49 lakh remuneration of an average employee in the same firms, revealed the study. CEO remuneration did not factor in stock-based compensation, as most managing directors in India are promoters who typically are not entitled to stock options. Stock-based remuneration forms a large chunk of executive compensation in developed economies. The study also excluded government-controlled companies, where top executive compensation is much low, at least on the books, compared to the private sector. Out of the 150 firms studied, CEOs in 40 firms earned more than hundred times the average employee pay. These were companies in sectors such as textile, pharma, cement, metal, sugar and construction where large number of blue-collared employees tends to keep average employee salaries low.

The captains and leaders of the industry must have to take igitaliza of this unilateral and alarming rise in the salaries of top executives. This soul searching must be done by them because any governmental interference as is being contemplated in China would be extraneous and may largely not be liked.


About labour law reporter

monthly magazine on labour laws in India

Posted on September 9, 2011, in News and views and tagged , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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