The Hindu Business Line : Tectonic shifts in salary

Naan Appavoda Adigam Sambadikaren, gushes a sweet 20-something in a TV commercial for a software course in popular Tamil channels. The advertisement, refreshing as it is, does not exaggerate a bit any more than the Prime Minister, Dr Manmohan Singh, when he counseled restraint in executive salary for which he has been pilloried and even mildly reprimanded.

The rise of salary

Quantum jumps in salaries for successive generations have been witnessed by all of us. My grandmother used to boast unabashedly of the four-figure salary of my grandfather, a maths professor. Today a clerk's wife would scoff at this figure. The point is salary keeps pace not only with inflation but also with the state of technology and economic development.

Competent IT and telecom professionals are able to wangle a mind-boggling pay packet because there is a felt need, a void that they are able to fill. Nobody resents his/her good fortune. If anything, the development would be welcomed by every well-wisher of India as it distinctly has the potential to hasten the arrest of brain drain which is already on the wane with many NRIs returning back home driven as much by patriotism as by lucre.

Narrow the gap

The Prime Minister, a renowned economist himself, couldn't have been oblivious of this reality. What he perhaps wanted to convey was the disproportionate salary CEOs and others calling shots in companies negotiate for themselves. Indeed he was not the first one in power to do so.

A couple of years ago, the redoubtable Mr Narayana Murthy of Infosys was given the thumbs down when he pleaded for a semblance of balance between the top and the lowest salaries. He prescribed a maximum differential of fifteen as a rule of thumb, which predictably raised the hackles of his peers who would brook no such self-restraint. The company law in India almost gives a carte blanche to companies to fix their managing director's salary so long as it does not exceed 5 per cent of the profits, which often translates into a figure enough to bankroll a small project.

The legendary CEO of GE, Jack Welch, was shamed into whittling down his retirement package, reported to be initially in the region of $370 million, when vigilantes protested at this gross abuse of the exalted position he held in the company for decades and the consequent authority he got to wield.

The differential

More needs to be done on the CEO compensation front than resignedly leaving it to corporate governance code given the fact that the code innocently reposes complete faith on the remuneration committee that is nothing but the handmaiden of the board of directors in any company. While it would not be proper for Parliament or the executive to micro-manage, it would perfectly be in order if Mr Narayana Murthy's prescription — maximum differential of 15 times — is made the law.

This would stop CEOs from going on a rampage ignoring the interests of lesser employees. Many people justify astronomical salary for the CEO on the ground that he also happens to be the risk taker. This innocent view confuses the two roles — employee and investor. As an investor a CEO should seek his reward elsewhere — capital market.

(The author is a Delhi-based chartered accountant.)

More Stories on : Human Resources | Reassessment

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

Stories in this Section
Consolidation takes wings

Brazil — the emerging bio-fuel power

Consultants and litigations unabated

An un`settling' decision

Entertainment may not wholly depend on language

Tectonic shifts in salary

`Many potentially good firms fall by the wayside'

Re-jigging ESOPs for the FBT era

Judicious use of power to withhold refund

Shining India-wide