Click to play videoUnion Corporate Affairs Minister Salman Khurshid has said that in times of austerity, the Government cannot shut its eyes to salaries being drawn by CEOs in India Inc.
There is even a bill called the Companies Sill now before a Parliamentary Standing Committee which says salaries of CEOs must be decided by shareholders. But two third of the 100 CEOs polled in an Associated Chambers of Commerce and Industry of India (Assocham) survey turned down Khurshid's suggestion that corporate salaries be capped. They said India needs to pay to attract talent.
However, Khurshid claims that even in the US exorbitant salaries of CEOs are being questioned, with President Barack Obama asking top management of companies to cut down on their salaries.
With India Inc. on one side and the Government on the other on salary cap issue, CNN-IBN's Face the Nation debated: Should there be a limit on a CEO's salary?
The panel of experts included Minister of State, Corporate Affairs and Minority Affairs, Salman Khurshid, FICCI General Secretary Amit Mitra, HR Chief and Board Member of Infosys Technologies TV Mohandas Pai and Congress MP and Spokesperson Abhishek Manu Singhvi.
Money matters
It is often said that politicians also have money power and that they require it to fight elections. So is a politician's wealth an occupational hazard while a CEO's wealth a mortal sin?
Khurshid started the debate by clarifying that he was not against the industry and that the point he was making was that salaries should not be too high.
"I am not pitting one group of people with another group. I have not said that the Government will control, I had said that there is a need to regulate. We are not the only one doing it. When President Obama can do it for the bankers' salaries, why can't we talk about it? Is talking anti-democratic? Second important thing is we in the Congress party have said that we need to reach out the people and we don't think affluence and opulence is the ultimate thing. We will have to make some gestures to begin with in order to convince the people and ourselves that we want to be austere. What's wrong with that?" said Khurshid.
Amit Mitra agreed with some of Khurshid's views but pointed out that talent comes with a price tag.
"The first point that the Minister is making that you do not spend it in a manner that is odious, or flaunt it. I have no disagreement with that. Where I have disagreement with the honourable Minister is that you want Indian minds to leave the country because they don't get good salaries. We must remember that salaries also result in wealth creation. Therefore, what we need is not a Government regulation because that will lead to talent flight. You already have a regulation and 10 per cent is already marked in the Companies Act. You cannot go beyond 10 per cent. If you begin to regulate beyond that you will see entrepreneurship go elsewhere, talent go elsewhere. But if you regulate then you will get a black market in salaries," said Mitra.
Khurshid quickly responded saying that Government was not planning to intervene but just wanted the companies to self regulate.
"I can empathise with that. I have not said that raise the 10 per cent to 20 per cent. The question is should we have the 10 per cent or not? There is a view that we should not have 10 per cent and I have shared that view for a very long time. But there is world opinion building that we need to do something about this. Can we do self regulation, can we do a dialogue about this? Can we find some disincentives and can we really make shareholder democracy truly meaningful in taking this decision? It is not simply assuming that the Government wants more control. Let me make it clear, Government does not want more control. But within that framework, can we reflect what Mr Mitra has just said?" he asked.
Infosys Co-Founder and Chief Mentor NR Narayan Murthy once said that the top management must earn salaries which are multiple of the salary of the lowest employee. But often CEOs earn salaries that have nothing to do with the salaries of the lowest employee, particularly the promoter-CEOs.
In companies of promoter-CEOs corporate governance often breaks down like in the case of Satyam. So there seems to be a need for regulation of salaries of CEOs and therefore the Government can step in with some kind of monitoring role, if not a direct and regulatory one.
Pai disagreed with the view and said that people should not use the Satyam example to judge the industry.
"I would say there is good corporate governance in India over the last four-five years. Satyam is an aberration. Industry is doing well they are creating employment. At the same time we must follow some principles with regard to CEOs’ compensation. A CEO who is the promoter of a large company should make sure that compensation is fixed in a arms length manner because a large shareholder who is also a CEO could see some conflict of interest. There needs to be some consideration for the lowest employee because you cannot have a large multiple or an outrageous multiple as we are in a society which is still coming out of its socialistic slumber. The 10 per cent cap should remain and industry should self regulate. But there will be a few black marks against the industry," said Pai.
But should not the Government focus on job creation, cost cutting and welfare of employees rather than on the salaries of CEOs.
Khurshid claimed that the Centre was concerned about the entire industry and not only about the salaries CEOs have been earning.
"We are concerned about corporate governance as a whole. This is a very minor but significant aspect of corporate governance and you just have a view that the 10 per cent cap must be kept. I was willing to remove the 10 per cent cap but why are you forcing me to take a decision. Why don't we agree on principles that apply even beyond the 10 per cent cap? What we want is meaningful, intelligent, enlightened discussion of people who are on the same side. We are not on two different sides. The media may want to put the Government and industry on different sides but we are on the same side," said Khurshid.
Singhvi declined to say much on the issue pointing out that it was the Government's job.
"As far as the party is concerned we have not taken any official stand on it. The party is part of a large coalition and if and when a decision has to be it will have to be in a coalition. Ultimately it is a decision which will have to be taken by the Government. That decision if taken will have to pass through Parliament," said Singhvi.
Is ‘vulgar’ wealth, as said by Khurshid, simply the monopoly of the corporate elite and is the political class not equally afflicted by flaunting wealth?
"My party and my leadership have very clearly said let's live simply. It is an aspiration that you implement by example. Secondly, I need to say to Amit Mitra that more than him, we are committed to ensure that the best minds are available and the best minds will obviously come at a cost. But is it just the best minds coming at a cost that we are talking about or is it about people who think they can get any amount of money and walk away with that," said Khurshid.
In India there are many promoter-CEOs who get the salary as well as dividend on the shares they hold. So should there be a cap on them?
Mitra said it was not true and gave examples to buttress his point.
"Let me give three examples: owner-promoter Mukesh Ambani, Rs 15,000 crore profit and he takes a salary which is equal to 0.29 per cent of the total profit. Sunil Bharti Mittal 0.32 per cent; Kumar Mangalam Birla not even half a per cent. What do they do with the money? A chunk of it goes to the Government as taxes and then most of it is reinvested," said Mitra.
Pai added, "I won't blame the politicians. The country is going through a very difficult phase. There have been floods in the south. People are concerned and many have lost their jobs. So they are voicing the views of the citizens. The compensation to the CEOs should be linked to the performance and should be reasonable. There are two sides of the picture but I agree that there should be a debate."
Khurshid concluded the debate saying that Government and industry must work together on the issue.
"Isn't this Government responsible for the remarkable growth this country has seen? We are partners with the industry. We want to find solutions with the industry. We don't want to bring control back. I think we need to talk about it and find a solution," he said.
Final results of the SMS/web poll: Should there be a limit on a CEO's salary?
Yes: 58 per cent
No: 42 per cent
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