Corporate Paycheque

The big, fat, Indian paycheque

Sandeep Singh
Posted online: Sunday, June 03, 2007

As India Inc. ponders the merit of prime minister’s suggestion on curbing “excessive remuneration”, here is a look at the salary status of the men who power the country’s economy and their place in the global sweepstakes

At Rs 24.51 crore, Mukesh Ambani, chairman and managing director (CMD) of India’s largest private company Reliance Industries, is the highest paid business leader of India. With Rs 15.58 crore, Brij Mohan Munjal, chairman of Hero Honda, comes a distant second, while Sunil Bharti Mittal, who took home Rs 12.68 crore last year as CMD of Bharti Airtel, stands third.
To put these numbers in perspective, on global sweepstakes, Ambani ranks as the world’s 12th highest paid executive, sandwiched between Aviva’s Richard Harvey (Rs 21.3 crore) and IBM’s Samuel J. Palmisano (Rs 32.8 crore), while Munjal gets the 19th rank, between AXA’s Henri De Castries (Rs 14.7 crore) and Ford Motor’s Alan Mulally (Rs 17.6 crore). And this is only converting dollars into rupees not accounting for purchasing power parity, which would take Ambani, Munjal and many of India’s top company’s leaders much higher. These numbers also exclude unlisted companies.
No doubt, riding a trillion-dollar economy, which has taken Indian companies’ valuations to over trillion dollars as well, salaries of CEOs of the country’s biggest private corporations have been sky-rocketing. There are enough reasons for the increase in executive pay. Profits, for instance: over the last three years, the bottom lines of the top 50 companies that comprise National Stock Exchange’s (NSE) Nifty Index have grown by 23 per cent per annum. There is one difference, however: these gains are restricted to “private” corporations, not public sector undertakings (PSUs) whose CMDs take home what management trainees get in many private companies.
Already a raging debate in the US, Prime Minister Manmohan Singh sparked it off in India last month when in context of “extreme poverty” he said, “Resist excessive remuneration to promoters and senior executives.” But the bigger and unexplored issue around executive compensation in India is delivery—just what is it that CEOs are bringing to the table? The numbers speak for themselves.
Compared to their global counterparts, Indian business leaders take home salaries that are a significantly higher percentage of revenues that they help the companies generate. At the aggregate level, Nifty CEOs take home a total compensation that comprises 0.027 per cent of revenues. Against this, the top 20 global company heads take 0.007 per cent of the revenue generated. That is, for every Rs 1 crore of revenues, Indian CEOs take home Rs 2,700 compared to Rs 700 that CEOs of top 20 global companies do.
But if you exclude PSU chiefs, the difference gets starker. Against Rs 2,700 that CEOs of all Nifty companies get, the number rises to Rs 4,000 if you remove PSUs like ONGC, SBI, SAIL and so on. The CEO compensation divide, clearly, is not merely global but national as well.
Within the private sector too, CEOs of family-run companies take home a larger package than professionally run firms. Based on compensation, the top five Indian CEOs are Reliance, Hero Honda, Bharti Airtel (Sunil Mittal draws Rs 12.68 crore), Cipla (Y.K. Hamied, Rs 7.88 crore) and Ranbaxy (Malvinder Singh, Rs 6.57 crore). Among professionally run companies, the stagnating Hindustan Lever’s CEO Douglas Baillie takes home Rs 4.59 crore. At the other end of the spectrum, just above PSU chiefs, is Infosys’ Nandan Nilekani, who took home Rs 41 lakh last year and has since handed over charge.
When expressed as a percentage of profits, Indian company heads are far above their global counterparts. On an average the CEOs of Nifty companies take home 0.168 per cent of the net profit their companies generate. Against this, the average remuneration that the heads of top 20 global companies take is 0.099 per cent. For every Rs 1 crore earned as profit, the Indian CEOs take home Rs 16,800, whereas global CEOs take home Rs 9,900. Exceptions again: Malvinder Singh of Ranbaxy takes home 3.1 per cent of the company’s profits, Munjal of Hero Honda and Sunil Duggal of Dabur take home 1.56 per cent and 1.35 per cent of the profit.
Among PSUs, Bharat Petroleum CMD Ashok Sinha took home the highest remuneration—all of Rs 23.9 lakh—followed by C. Venkataramana of Nalco (Rs 17 lakh). The lowest paid CEO in Nifty was A.K. Purwar, CMD of India’s largest bank State Bank of India, who received Rs 5.7 lakh last year (he has retired since).
Executive compensation is not something that the government or the media can decide. At best they can provide a platform for debate. Finally, it is company boards that have to take the call on how much, how far, how stretched. The board needs to take the realities of talent availability and contrast them against delivery. But a corporate India that benchmarks almost every decision against global levels—finance, markets, technology, scale and so on—perhaps it’s time for it to look at executive compensation as well.

http://www.indianexpress.com/story/32538.html