Salary packages of top level executives of companies, especially the CEOs, has been a matter of concern and debates in India for quite sometime throughout the world, especially the Western world. The Occupy Wall Street movement essentially stood for the vast inequality between what is now famously called the elite 1% and the 99% percent of the society. The Times, UK, reported on Monday on a recent report by the think tank "High Pay Centre" which says an "executive pay racket" has developed with "the earnings of chief executives growing to 180 times that of the average worker, compared with 60 times as much in the 1990s ."
The think tank now proposes to cap the salaries of CEOs by fixing a multiple over and above the lowest paid individual in the company. This, the story says, will be important to reduce inequalities and bring better political stability.
In India, too, this has been a sensitive issue, with none other than Narayan Murthy asking in an article in 2012 the essential question "how much is too much?". He argued that the reason why CEOs needed to be paid globally competitive compensation was that they had the capabilities of global standards and would find global opportunities for themselves. So, he paves the way of "compassionate capitalism" where he says that that the compensation of the CEO must maintain a ratio of 20-25 times with the lowest paid professional in the company. Murthy clearly has not stuck to what he preaches with Vishal Sikka, the new CEO of Infosys coming in being paid Rs 30 crore annually (on cost to company basis) excluding the stock options he gets. Compare this to the Rs 3.5 lakh which would be the approximate salary of the engineers hired by the IT behemoth.
This is just a small example to show what has been established by many researches. The average compensation of the CEO stood at Rs 2.6 crore in India at the end of 2011-12. This was a rise of 30% over the past one year.
This was 2.6 times the next level of top executives in a company. There are differences between CEO compensations across companies depending on size and whether their are promoter led or not. Institutional investors Advisory Services, in a report in 2013 showed that in 2011-12, the average remuneration of managing directors of 30 BSE Sensex companies stood at Rs 10.9 crore, while for BSE 100 and 500 companies it stood at Rs 6.2 crore and Rs 3.6 crore respectively.
If one can compare the sizes and revenues of companies, the CEO compensation in India is higher than US for every dollar of revenue. It is also found that the compensations are higher for the promoter led companies. The Companies Act provides some legislative limit on CEO compensations, but it is flexible enough too incorporate the whopping compensations here.
The new poverty estimates given by the C Rangarajan committee says 3 in every 10 Indians are "poor" in the sense they fall under the expenditure brackets of Rs 32 a day in rural areas and Rs 47 a day for urban areas. And I think we agree that the poverty line is abysmal in itself. Now compare this to what has happened to real wages in India. An International Labour Organisation (ILO) report in 2012 showed that the real wages in India fell 1% between 2008 and 2011. Over that same time period, productivity went up 7.6%. Compare this to China where the real wage went up 11% while the productivity growth was 9%. India's real wage growth was in fact a poor 1% in 1999-2007 while productivity was up 5%
But Indian shareholders are perhaps sitting up and taking note. For example, in end 2012, the institutional shareholders of Jindal Steel and Power rejected a proposal that would allow the chairman Naveen Jindal to decide remuneration of all directors including his own. Jindal drew Rs 73.4 crore in 2011-12 from the company. In July this year, the shareholders have rejected the approval of payment of minimum remunerations to three of its directors after the company performed badly.
A philosophy of high growth trickling down to the poorest in the country is clearly taking too long to be successful in India, with a major chunk of the population living at inhuman levels of poverty. The inequality that exists in the corporate structuring of salaries and remunerations is just reflective of how the whole society works in India. The people who are up in arms because rural wages are being revised thanks to NREGA, are absolutely fine with a CEO earning fat bonuses even when the going is not good for his company. Irony just killed itself there.
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