After all the talk about cost cutting in the government sector the austerity drive is back in news but this time it’s the corporate industry which is being targeted. Salman Khursheed. Corporate Affairs Minister Salman Khurshid advised India Inc to refrain from doling out “vulgar” salaries to CEOs. “I think when we are working on this (austerity), we can hardly say that we will shut our eyes on what salary the CEOs are going to take,” was his response when asked how the Government intends to control salaries of CEOs which at times appear vulgar.
Going by the recent Austerity drive of the Central Govt, it was a very innocuous comment by the Corporate Affairs Minister-“no vulgar salaries, please!” but the comment has not gone down well with the India Inc who seem to be offended by it and why shouldn’t they be?? This absurd comment does no credit to a minister of a ‘reformist’ government in the 21st century. Maybe a better choice of words would have made a difference. On the contrary, Mr Khurshid’s remark smacks of the pre-reform licence-permit raj days.
Let use get down to the Companies Act 1956 (Section 198) to get a better perspective. The act lays down a ceiling on managerial remuneration (not more than 11% of the net profits of that company for that financial year) and on the salaries of top company officials (not more than 5% of the net profits for a whole-time/managing director and not more than 10% if there is more than one). That is what the law book has but if everybody followed them then there won’t be need of any judiciary and as expected companies invariably find ways to get around these laws not to evade some tax but to tap and retain the right talent. Increasingly they began to pay in kind rather than in cash, defeating both the purpose of the legislation and giving rise to the infamous fringe-benefit tax.
Now that we have talked about the law let us see the ground reality. Salman Khurshid may be surprised to know that the CEOs of many Indian companies may be underpaid not by global standards (a meaningless comparison), but by the government’s own guidelines. At senior levels, executive compensation is subject to government guidelines that are de facto restrictions linked to net profits (none of it taxpayers’ money).
At Rs 44 crore in 2008, the annual remuneration of Mukesh Ambani, the highest-paid CEO of a listed company, was just 0.29 per cent of the net profit of India’s largest company.
For Sunil Mittal, head of India’s largest telecom company, the relevant numbers were Rs 19.55 crore(0.32%).Kumar Mangalam Birla gets paid Rs 11.25 crore 0.56% of Grasim’s net profit.
But not all CEOs are similarly virtuous. Apollo Tyres’ Omkar Kanwar helped himself to Rs 15.54 crore in 2008 which accounts to 7 % of the firm’s profits. Malvinder Mohan Singh of Ranbaxy, which was later bought by Japan’s Daiichi Sankyo, drew remuneration of Rs 19.59 crore which was 3.4 % of the profits of a company that slid from being the No.1 drug firm to the No.3 position by that year.
The facts, therefore, suggest that most chief executives are exercising restraint by staying well within what the guidelines permit. The minister’s comment was so unwarranted.
Cap on Minister Salaries??
Pointing out that the salaries of CEOs should be decided by shareholders, the minister said, “I don’t think anyone in India today, in politics or outside politics has reached the level of liberalism where vulgarity is also a fundamental right.” To hear such a comment from a politician is rubbish. I don’t know about Salman Kursheed but I can blindly place a bet for a million $ that 60-80 % of our Netas are corrupt.(I too don’t know how I arrived at that figure but that is my estimate.) ..So I want to pose a simple question to our Mr Minster. Is corruption a fundamental right??? Politician’s Wealth: How much is too much?” Is there any limit to Corruption? From where does the money come to them? Is it not the tax payer’s money? If shareholders decide the salaries of CEO’s then we, the public should decide MP/MLA/Govt officials’ salaries and perks and not some pay commission. If at all such a day comes in our democracy then politicians will no longer get the allowances that they enjoy today.
Forcing austerity on a specific section of society which actually contributes to the growth of the country will only make it less motivated towards achieving their targets. They would surely move out of the country where they would maintain their earnings and would have a better lifestyle.
The word austerity is dragged into dirt! You can’t force someone to follow thing like asceticism! It should be inbuilt into their value system. I think the private companies can have any salary for the CEOs as long as that is based on some logic or an ACT. But if these companies are asking for Govt’s help that is when the Govt has the right to decide what needs to be done in terms of austerity. First let our politicians learn the real meaning of austerity and follow it with honesty and lead the way for others to follow. Let there not be double standards.
It would be better if Mr Salman and other ministers mind their own Ministries for the betterment of the whole nation. If Ministers stop taking Bribe and stop corruption we could be the NO 1 Economy in no time. If India stands today something it’s just because of the Private Sector as the Govt by itself is utterly corrupt and incompetent
There is going to be more talk on this in the coming days but I will be happy if more focus from the government side is given on the ‘corporate governance’ aspects and to create conditions to promote shareholder activists. And hopefully, top management salaries are best left to shareholders, the ultimate owners of a company, to decide!!