Govt frowns upon fancy CEO salaries, preaches austerity

Published on Tue, Oct 06, 2009 at 08:47 | Updated at Tue, Oct 06, 2009 at 14:33 | Source : CNBC-TV18

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India Inc should refrain from granting itself exorbitant pay packages, said Salman Khurshid, the Union Minister for Corporate Affairs. The minister added that while the government would not dictate salaries, it would, however, issue guidelines in this regard.

“We are accountable to the people and therefore we are doing this beyond the rules,” Khurshid said.

“It would be paternalistic [for the government] to tell the shareholder what’s good for the company. However, the shareholder must have information, we will educate the shareholders whether there should be some upper limit [to the executives’ salaries] etc. It’s something that the standing committee is examining,” he said.

Two third of the 100 Chief Executive Officers (CEOs) polled in an associated chamber of commerce and industry of India (ASSOCHAM) survey, turned down Corporate Affairs Minister Salman Khurshid's suggestion that corporate salaries need to be capped. They said that India needs to pay to attract talent even as most of the Indian political establishment batted for capping CEO salaries. CNBC-TV18’s Sonal Joshi and Abhijit Neogy report.

Salman Khurshid' suggestion on corporate austerity has been turned down by corporate India. 60 of the 100 top CEOs surveyed by industry association assocham said that the best talent cannot be attracted if salaries are capped. Market forces cannot be ignored while determining CEO salaries. Sanjeev Bikhchandani, Founder & CEO of naukri.com said ''I don’t think the government can micro - manage everything. It will just result in over regulation- one more regulation, one more return to file, one more inspection to be done and one more auction on rest by government officials. So I m not sure if that is a good idea. I think that will impede growth rather than facilitate.''

Ashok Soota, CEO of Mind Tree Technologies said that he doesn’t know about other companies but the compensation is governed by the corporate law.

Management salaries are already governed by corporate law. A company's top management cannot earn more than 10% of total profits. An amendment to the company's act will also give shareholders a say in deciding executive salaries. The amended act, tabled in August this year, is currently before a standing committee of Parliament. The Minister for Corporate Affairs has already indicated that he would like CEO salary thresholds to be at lower levels.

Anand Sharma, Commerce Minister is of the view that the reference was to indecent salaries. He said that these are austere times and corporate India should reflect on this but its upto the shareholders to decide. Premier industry association Confederation of Indian Industry (CII) has reacted with caution on the statements made by the Corporate Affairs Minister. The CII has said that a committee set up under Naresh Chandra is working on a draft code on corporate governance which would also include drawing up remuneration practices for board level and below board level members. The code would have been voluntarily adopted by industry and so it feels the government should have waited for it to be out in the public domain.

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