AMERICAN PERISCOPE. Money matters

The announcement that Satya Nadella, CEO of Microsoft, received $84 million (over ₹520 crore) as compensation during fiscal 2014 must have attracted wide attention. This is the highest compensation received by any US CEO during that year. And since US CEOs tend to pocket more than their peers in other countries, this must be the highest on the planet.

What justifies a certain level of compensation? Any employer rationally expects that an employee’s contribution would be a multiple of what he was paying the employee. This is logical, for otherwise why hire the person?

Microsoft’s proxy statement informs us that the “compensation package for our CEO is designed to motivate him to successfully implement our business transformation and create sustainable long-term value for shareholders.” In addition, Nadella “is a proven leader with masterful engineering skills, business vision, and the ability to bring people together (and)… he delivered strong, consistent growth, outperforming the market and taking share from competitors”.

Considering that he was made CEO only in February 2014, clearly the company must have calculated that during the year, it benefited many times the few millions he was paid, or perhaps expects a strong revenue stream from his contributions in the future.

Now that we have a fair idea of Nadella’s responsibility and accomplishment, we can bring in the debate that HR managers have about compensation, namely, the notion of comparable worth. That will broaden our comparison for the idea of comparable worth is that jobs that require comparable abilities, skills and knowledge should be paid the same salary.

Fortuitously, the Parade magazine, that comes free in the US with many newspapers, came out with its Annual Salary Survey at the same time as the news about Nadella’s compensation and enabled me to set up a new Nadella Index (NI) — what proportion of Nadella’s salary did others receive. We can now ponder the idea of comparable worth.

Actor Vin Diesel who leaps without a scratch from burning buildings and demolishes his enemies is about 30 per cent NI; Brian Eichenberg, a plastic surgeon, who believes he is an artist and the human body is the canvas is at 0.5 per cent NI; Will Breazeale, a war veteran who is now in another very stressful job as an airline pilot makes 0.2 per cent NI; and they are all about the same age as Nadella. A much older Elizabeth Warren, a US Senator, is at 0.2 per cent NI.

The International Labour Organisation has calculated a global average salary which is 0.02 per cent NI. (Is this a good time to remind you that about 33 per cent of the world’s population lives on less than $2 a day?)

Let’s face it. This is getting us nowhere. How do we compare the job of a senator, or a pilot with that of a CEO? Perhaps the HR professionals have gotten onto a good thing that they can keep debating without reaching a conclusion.

The bottom line when it comes to compensation is that you should try and get the maximum out of your employer that you can. Our congratulations to Nadella on achieving this! Microsoft’s proxy statement provides a detailed discussion of how they arrive at senior executive compensation, with charts, underlying theories, comparison with peer companies, benchmarking and so on. It always helps to have a good compensation consultant around to provide a rational justification!

The writer is a professor at Jindal Global Business School, Delhi NCR and at Suffolk University, Boston

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