How equitable are the salaries at India Inc?
That’s the question often being raised after Maruti Suzuki Chairman RC Bhargava earlier this week said companies should stop paying ‘obscene’ salaries to their CEOs.
In an interview with The Times of India, Bhargava pointed out that the Japanese society was more equitable, and added that an MD should be paid a maximum of 15-20 times the salary of an ordinary worker who has spent the same number of years in the company.
While the 15-20 times benchmark may be debatable, an exercise by Moneycontrol threw up some interesting facts.
A cursory glance through the 50 Nifty companies showed that just two companies met the above-stated benchmark in terms of CEO salaries. Yes, Maruti Suzuki is one of them. The second one, with the lowest ratio, in the government-controlled Coal India.
CEOs and MDs of these top 50 companies in the country were paid anywhere between 4.2 times to as much as 1,052 times the median salary of their employees in the financial year 2018-19.
On average, the top executive of these companies took home salary that was 260.5 times the median salary of other employees. The only exception here is Sun Pharma's Promoter and Managing Director Dilip Shanghvi who received Re 1 as his remuneration in 2018-19.
Top executives at Maruti Suzuki were among the most moderately-paid compared to their peers. For instance, its MD & CEO Kenichi Ayukawa had a pay package of Rs 5.02 crore.
In fact, in the company's annual report for 2018-19, RC Bhargava had noted that the salary of the MD is between 14 and 25 times that of a workman with 35 years of service.
On the other hand, Mahindra & Mahindra's Pawan Goenka took home a salary Rs 12.19 crore, while Hero MotoCorp Chairman Pawan Munjal drew Rs 80.41 crore.
The highest and the lowest
Sajjan Jindal, Chairman & MD of JSW Steel, had the highest multiple in terms of compensation. It was at a whopping 1,052 times with a package of Rs 70.3 crore compared to an average worker in the company. However, Hero Motocorp’s Pawan Munjal was the highest-paid CEO in the country with his salary of Rs 80.41 crore at nearly 809 times the average worker in the company.
Graphics by Ritesh Presswala
The lone exception, as mentioned above, was Sun Pharma's Shanghvi who chose to forego most of his FY19 salary to take home Re 1 as India's largest drug maker optimized operational costs due to pricing pressure and moderating growth in the US. Shanghvi's salary in FY18 was around Rs 3 crore.
Contra view: Salary caps not viable
While there is a debate on how much salary can be paid to the senior management, human resource experts are of the view that there cannot be caps or ceilings placed on CEO salary.
Rituparna Chakraborty, Co-Founder & Executive Vice President, TeamLease Services said, “Some of the different parameters used internationally such as top management pay versus workforce are not exactly comparable to India.
“You cannot take a socialist approach to compensation. You have to see what value that individual brings to the organisation and what growth or progress he has initiated,” she added.
Going forward, however, she said more companies will have a higher component of variable pay and performance-linked incentives for the top management.
Similarly, human resource officials said there should be a differentiation between promoter CEO and profession CEO.
Sunil Goel, Managing Director of executive search firm GlobalHunt said, "professional CEOs take a risk when they join a different company. They join for a role and for compensation. Putting a cap may make the company less attractive for good talent,” he added.
But, Goel said top executives must take a moral stand and decide what the appropriate salary should be. For instance, when an average employee is not being paid proper compensation and bonuses, the CEO cannot be taking an obscenely high salary.
International comparison
A New York Times report said compensation for top bosses in the US grew at double the pace of ordinary workers, in 2018. Tesla’s Elon Musk topped the list with a $2.3 billion package.
On average, a boss in the US received compensation of $18.9 million in 2018, a raise of $1.1 million or 6.3 percent from the year-ago period.
Companies listed on the NYSE are required to disclose the CEO salary and its ratio to the average worker. A 2017 Bloomberg report said a CEO in the US earns 265 times the average worker there.
There is rising pressure by corporate governance experts to ensure there is some pay parity and a few labour rights activists have sought that the wage gap between top management and average worker comes down.
In other countries like Japan, the CEO pay is said to be only 10-15 times the average worker. In fact, there is a debate to make the CEO salaries more attractive in Japan.
(With inputs from Parnika Sokhi, Swaraj Baggonkar, Viswanath Pilla, Swathi Moorthy, and Maryam Farooqui)
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