The Hindu Business Line : <I>Curbing runaway executive pay</I>

The Prime Minister, Dr Manmohan Singh, has done well by stoking the embers of the dormant debate on the scope and scale of emoluments paid to promoters and executives in the corporate sector. He has done so at exactly the right forum, the National Conference and the Annual Session of the Confederation of Indian Industry (CII) on May 24. Many in the audience must have squirmed in their seats when he sternly asked business and industry to `resist excessive remuneration' and conspicuous consumption.

Apart from periodical calls for moderation and restraint, there seems to have been no attempt to keep the range of corporate remuneration levels under constant review in relation to acceptable criteria for justification. The corporate sector has much to learn in this respect from the Government which brings the entire salary structure of its employees under the scanner at intervals of around 10 years by means of a Pay Commission, usually headed by a retired Supreme Court Justice.

Here is a device that the associations and federations of chambers of industry and commerce too can usefully employ once in 10 years or so to be in sync and in step with a scientifically computed index of economic well-being of the general run of the population.

They can, by common consent, establish an executive compensation panel at agreed intervals for each industry or a group of allied industries which can come up with recommendations taking account of the special nature of the duties and functions of executives, including the chief executives.

Executive emoluments

There are, of course, in almost every company, executive compensation committees constituted by the board of directors with members nominated from among them, including perhaps an independent director.

Functioning within the parameters of the compulsions imposed by the culture, traditions and power equations within the companies, these committees have not been able to enforce socially appropriate norms and limits to executive emoluments. On the contrary, a glance at the annual reports will show how emoluments have been soaring to an unconscionable extent.

Add to this the generally perceived want of aggressively proactive stakeholders who would exercise strict and continued vigilance and control, and insist on adherence to well laid out principles governing compensation, and it will be easy to understand why and how permissiveness, sometimes of the runaway kind, gets built into the situation.

It is not as if the problem of excessive payouts is confined to India. Only on May 26, The New York Times came out with an editorial ``A Say on Executive Pay'', on the widening chasm between excessively paid corporate executives and average workers in the US and the deleterious tendencies it has given rise to. Shareholders of increasing number of companies are demanding their prior concurrence for pay packages, and the US Congress is said to be thinking of a law to keep emoluments within limits of decency.

The prevalent trend of skyrocketing compensation packages and severance payouts in India is by itself `vulgar' as being indicative of the base instinct of greed and self-indulgence. But when set against the appalling conditions in which millions in the country eke out their existence, it is a clear invitation to social unrest.

Corporate circles have shown little sign of serious introspection over this matter of vital relevance to removal of income disparities and consequent risk of negating the economic gains. Only Mr. N. R. Narayanamurthy had been propagating, with no perceptible effect, the imperative need to peg the top pay at between 15 and 20 times of the lowest pay.

The time has come for Corporate Boards in India too to ask of themselves what they can give back to India and not how much more they can take out of it.

B. S. RAGHAVAN

More Stories on : Human Resources | Offhand | Management

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
NDC homilies

Govt-industry: A maturing relationship

Planning for Power — Where rhetoric and reality part ways

Out of school — an elementary, unaddressed problem

What do parents want?

Is there a solution?

Equity derivatives on a high

Curbing runaway executive pay

Power crisis