Executive Compensation In Limelight But Analyses Are Flawed

Lots of articles have bee appearing in business dailies and business magazines, of late. It may be an indication that the policy makers, regulators, academics , media and public in general have realized that executive compensation is an important issue in our country too. Business Line dated 12^th March and 13^th March both carried articles on executive compensation.”Honchos rake it in, no questions asked’ by S. Muralidharan  and “ Corporate top brass too highly paid” by B.S.Raghavan. While the article carried some interesting data and accompanying facts, some of the contentions  or the arguments of the authors  are  disputable. For example, Mr. Raghavan said that “the blame  for letting the fat cats have their own way has to be laid squarely on the shareholders”. In a large majority of Indian companies, promoters hold very high stakes and they themselves are in the management and hence the ‘fat cats’. For example, the promoters of Jindal Steel & Power have a stake of 58.91% in the company and thus can get any resolutions on the executive compensation(including that of Naveen  Jindal, CEO) passed. As long as there is no regulation or at least a convention or practice of interested parties abstaining from voting on resolutions when it is concerned about themselves(and not about the company’s plans per se),outside shareholders  can do very little to influence the decisions even if SEBI’s new stipulation of minimum 25% public holding is in place.

The argument of difficulty of getting talent for lesser emoluments  by companies echoed by Mr.Raghavan also doesn’t merit much attention in India because when they do so, promoters are making a proclamation that they/ their nominees are highly talented. Who sits in the judgment of talent of Mr.Naveen Jindal? Will he move over to another steelmaker, say, Tata Steel(who incidentally pays much lesser to its professional CEO)?

And last but not the least, the authors make the common mistake everyone else writing on Indian CEO compensation makes when writing about CEO compensation: compare  them with US CEO pay levels. The comparison is out of context as US companies, by and large(at least about whose compensation levels  people write on), have  professional CEOs whereas Indian companies mostly have promoter CEOs(by whatever designation they are called). A comparison can make sense only when compensation levels in companies like HUL or ITC or L&T or Maruti Suzuki or companies from certain groups like Tatas or Aditya Birla where the promoters usually don’t hold any executive positions, are compared with their US counterparts.