In the backdrop of the widening gap in the salary of the top management of companies and their ordinary workers, the Securities and Exchange Board of India chairman UK Sinha on Friday said companies should be “sensitive” to the issue of difference in wage pay. Speaking in the global context, he said this rising wage differential was not sustainable.
“In the FTSE 100 companies, the CEO’s pay is 180 times the average pay of employees. In the USA, the pay of S&P 500 CEO was 204 times the median pay of workers in 2015,” Sinha said while delivering the JRD Tata Memorial Lecture organised by industry chamber Assocham.
When asked about his view in the Indian context, Sinha said: “It would be wrong for me to have any view on the quantum of compensation which a corporation can give. The point which worries me is what is the process being followed, and if the corporation is so rich that it pays so much to its chief executive, is it also into taking the interest of the normal worker?”
“I would say that this ratio of more than 200 (between the median pay of the CEO and the worker) is perhaps not sustainable…I would be talking of the manner in which it is decided and I gave you the example of – in boards after boards, in general meetings after general meetings, such requests (of hefty pay to CEOs) are getting rejected. And I am not talking in the Indian context, I am talking in the global context. So all I am asking is that all of us have to be sensitive to this issue,” he said.
Sebi has recently directed the mutual fund houses to disclose the information relating salary of all executives earning above Rs 60 lakh per annum. An analysis of the overall employee expense of fund houses shows that the industry paid a total of Rs 1,832 crore in salaries in the year 2014-15 and it was 105 per cent of the total amount that the industry earned in profits during the year.
Speaking on the overall theme of accountability among regulators and corporations. Sinha said corporate governance, related party transactions and independent director are some of the areas where accountability of companies are being tested vigorously. He said the the markets regulator has noticed and stopped instances where small private companies were being merged with the listed companies at a huge valuation mainly to provide benefit to the promoters at the cost of minority shareholders.
Apart from demanding greater accountability from firms, Sinha also called for a stronger Parliamentary oversight for regulators. “In the Indian context, a further strengthening of the mechanism of Parliamentary oversight is required,” he said. He said it is doubtful whether the hundreds of regulations are ever scrutinised by the parliamentary committee or whether the activities are sufficiently under the radar of Parliament.
Parliamentary committees should be empowered to have a sufficient number of experts to aid and advise them for a structured working of the regulators, he added. As a strong votary of transparency in corporate India, Sinha said regulators too “cannot escape the scrutiny of their working” as they are, in several cases, empowered as “mini states” with vast power.
“It was time to pause and think whether we are creating too many institutions to ensure accountability or should we aim towards more accountability in more institutions,” he added. However, he pressed for checks and balances to ensure that in the name of accountability the very functioning of the regulators is not throttled. He said that judicial review is another major safeguard for accountability. The orders passed by the capital markets watchdog can be challenged before the Securities Appellate Tribunal (SAT). Sebi has track record of 94 per cent of success at the appellate level.