The Hindu Business Line : Pay disparity

There is of course a political context to the Prime Minister's call to industry to display a sense of moderation in the executive compensation structure. The UPA Government that Dr Manmohan Singh heads has come under some flak from both within and outside for not having done enough for the `common man' that would make a tangible difference to his standard of living. The fact that the Congress party has not fared as well as it hoped to in the States that went to polls recently has only served to make the chorus of protest that has seen even some of his Cabinet colleagues joining in, just that bit louder. In the event, the Prime Minister might have hoped that ticking off the corporate sector for its ostentatious ways in executive compensation would help restore some of his `pro-poor' credentials. To his credit however, he has avoided the path of demagogy that is all too common in the country's political discourse choosing, instead, to rely on an appeal to the instinct for self-denial.

There is no doubt that over the years salaries, especially at the higher echelons of corporate management, have risen far more rapidly than elsewhere in the economy. Demand for competent managers has been running ahead of availability, the globalisation of the market for human resource being a key factor. This is reinforced by a new-found international recognition that India possesses top-notch management talent. If domestic companies are to attract and retain talent, it stands to reason that they offer globally competitive salaries of course, adjusted for differences in Indian and cross-border costs of living. That these domestic companies are expected to fight international competition in product markets only makes their case stronger. Hobbling them through stultifying controls on executive compensation — a feature of an earlier era — would be self-defeating. But it is essential that shareholders are empowered to decide on what constitutes a fair reward for top talent.

The Government could put in place a corporate governance structure that emphasises greater disclosure of executive compensation so that minority shareholders and consumer self-help groups are empowered to play a more meaningful role. The vigilantism of the shareholder/consumer activists might stave off the executive demand for extravagant compensation packages. But that is not going to address the core issue — that a significant section of the population is forced to live in abject poverty. The global manager's sacrifice at the margin is not going to impress the aam aadmi, who is more concerned about how his basic needs are to be met. On that, only the government that he has voted to power can help.

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