The AFL-CIO, a large national federation of US labour unions, has calculated that the top 500 US CEOs earned on average $12.4 million (about ₹83 crore) last year, about 340 times the average worker’s wage. This staggering figure can evoke several reactions depending on your point of view. If you are a socialist, you will complain about exploitation of the poor. If you are a capitalist, you would say how wonderful a society that offered these CEOs the opportunity to earn this kind of money is, and seek support from Deng Xioping’s apocryphal quote: “To get rich is glorious!’

Mahatma Gandhi, who had problems with both ideologies, did not particularly like wide disparities in society. Applying non-violence to wealth accumulation, he wanted the rich to behave as trustees. Writing to the Viceroy on March 2, 1930 on the eve of the salt satyagraha , he pointed out that the Viceroy was being paid 5000 times India’s average income. In a clever comparison, he also pointed out that the British Prime Minister himself was being paid only 90 times Britain’s average income!

Cut to gain

Gandhiji was highlighting how expensive the foreign administration was in India. So with CEOs. Would they be pushing schemes within the company to cut costs when they pay themselves so highly? AFL-CIO has argued that while Irene Rosenfeld, the CEO of Mondelez International drew 368 times the wage of a production worker in her company, Modelelz was shutting down a plant in the US and moving production to Mexico to cut costs. Any cost but that of the CEO, I suppose.

Perhaps then ‘equity’ is not an item in the CEOs agenda but ‘power’ surely is. If a CEO can convince his or her board to hand out such large sums, then why not grab? US companies are required to declare top management compensation in their annual reports and some have faced opposition from minority voters who have tried to move resolutions blocking such lavish payments.

British shareholders are also revolting. More than 22 per cent of the shareholders of Standard Life, an insurance company, protested that directors’ pay was too high. And this was in spite of the CEO offering to reduce his potential long-term bonus. We were recently told that the CEOs of two of the top IT companies in India were paid about ₹35 crore and ₹48 crore respectively. The news report helpfully mentioned that it was 416 and 935 times the respective median remuneration of their companies’ staff. They have managed to better the Americans!

It is not an exact science to calculate a CEO’s worth. Apart from situational considerations, there is peer pressure at work constantly pushing up CEO compensation. A pliant board is always helpful; you pack the board with your supporters over time and when the vote to decide compensation comes up, they will all nod. Income inequality has been widening in all the major economies and Bernie Sanders has been talking about a ‘disappearing middle class’. They have been sucked into CEO salaries.

I can only conclude with Gandhiji’s words to the Viceroy in the same letter referred to earlier: “I know that you do not need the salary you get. Probably the whole of your salary goes for charity. But a system that provides for such an arrangement deserves to be summarily scrapped.”

The writer teaches at the Jindal Global Business School, Sonipat, Delhi NCR and at Suffolk University, Boston

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