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Here's why promoters taking huge pay cuts is all eyewash

Accordingly, the media has widely reported that by taking only Rs.15 crore Mr Mukesh Ambani is forgoing Rs.24 crore as salary.

May 28, 2013 / 09:57 AM IST

I am sure you would come across the following headlines in the last few days:

  • Mukesh Ambani forgoes Rs 24 crore in salary
  • Infosys CEO and MD takes 26 percent pay cut in FY13

Well, to be very frank, this is all eyewash. Let's see how!

As declared by Reliance Industries in its annual accounts for the FY 2012-13 "The Chairman and Managing Director's compensation has been set at Rs.15 crore as against Rs.38.93 crore he is eligible as per shareholders' approval reflecting his desire to continue to set a personal example in managerial compensation levels".

Accordingly, the media has widely reported that by taking only Rs.15 crore Mr. Mukesh Ambani is forgoing Rs.24 crore as salary.

What a 'cruel' joke to play on the unsuspecting public!

As per the results declared for FY 2012-13, Reliance will pay out Rs.2628 crore as dividend.

As per the shareholding pattern as on Mar 31, 2013, promoter and promoter companies hold 45.35%.

This works out to Rs.1192 crore that Mr. Mukesh Ambani and his family and family-owned companies would receive as dividend.

So the seemingly huge sum of Rs.24 crore forgone by Mr. Mukesh Ambani works out to a mere 2%.

To put the numbers in perspective: Suppose your salary is Rs.50,000 p.m. i.e. Rs.6 lakh per annum. Then forgoing 2% would mean an amount of mere Rs.12,000. I guess you too can afford to forgo this petty amount (especially if you get this kind of publicity).

Moreover, these numbers pertain to Reliance Industries Ltd. only. What about salary/dividends from the other group companies in the Reliance Group?

Of course, there are absolutely no issues with Mr. Ambani taking a Rs.1000+ crore payout. He fully deserves it. He has built one of the finest industrial groups worldwide. However, trying to take a moral high ground, on such an insignificant amount, is not in the right spirit.

Similarly, in case of Mr. Shibulal, CEO and MD of Infosys, last year his salary was USD 162,990 (approx. Rs.88 lakhs). This year he takes home only USD 119,774 (about Rs.65 lakhs).

However, what no one has reported is that his family members and he own around Rs.1.26 crore shares in Infosys. The dividend announced for FY 12-13 is Rs.42/share. Hence, Mr. Shibulal and his family will receive Rs.53 crores as dividend. So does it really matter if he receives Rs.23 lakhs lesser salary than last year?

Again, there are absolutely no issues with Mr Shibulal being rewarded for creating such an iconic organization. However, again, focusing on nominal pay cuts is not in the right spirit.

I am sure the so-called 'informed media' could have reported the dividend numbers too to give a right perspective to these news items.

(By the way, as you may be aware, on salary the income tax is 30%, whereas dividend is taxed at 15% only.)

TAGS: #investing
first published: May 27, 2013 07:39 pm

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