The greed dividend

With the are-CEOs-getting-paid-too-much debate hotting up with each passing day, we would like to place our position upfront: we do not believe CEOs are getting paid too much even though, as one newspaper recently reported, select CEOs got a fifty per cent salary hike last year even as sales of their companies flagged. We have been strong critics of the pre-reform days when the government would decide pay structures for corporate chiefs. This encouraged mediocrity and legitimised massive underhand payments by corporate India.

Today, when corporate honchos are taking home huge salary packages and all above the table, we see it as just another example of the functioning of the free market. Bajaj Auto chief Rahul Bajaj8217;s annual compensation package of Rs 0.56 crore, it is true, does look really modest when compared to the Rs 7.56 crore that his competitor, Hero Honda8217;s Brij Mohan Munjal, takes home. The fact is, however, that Munjal8217;s Hero Honda has overtaken Bajaj as the country8217;s top two-wheeler manufacturer. K. Anji Reddy8217;s Rs 9.8 crore does look a bit obscene Reliance Industries, with a turnover 35 times higher pays its top shots less. But consider some facts 8212; Dr Reddy8217;s Lab saw its profit margins go up 30 per cent this year and earnings-per-share shot up almost three times. With the firm positioned as a big-time global pharma major, almost any salary for its CEO seems fine.

Sure, we agree things need to be re-looked when you have CEOs hiking salaries dramatically even when their firms are struggling. The Sunday Express has reported how Gujarat Ambuja Cements8217; CEO saw his salary go up from less than a crore three years ago to Rs 2.69 crore, even as the company8217;s profits fell from Rs 428 crore to Rs 186 crore this year. But here, too, we would advise caution. Commodity-industries, like cement, go through business cycles, and CEO-pay cannot be fully-indexed to them, going up and down entirely in sync with the bottomline. Besides, in an increasingly competitive marketplace, where a paints-CEO could sell insurance just as easily tomorrow, CEO salaries are bound to have an upward momentum of their own as companies struggle to retain top talent. But, yes, we do need strong corporate-governance structures to ensure company-CEOs, particularly the owner-managed ones, don8217;t just get pliant boards to rubberstamp undeserved pay hikes.