Does CEO compensation in India need a rethink?

compensationIt all started, late last year, with Corporate Affairs Minister Salman Khursheed advice to Corporate India to refrain from doling out “vulgar” salaries to its top executives.

The industry though is very clear in its stand – to leave the pay packets to be decided by the industry and not the Govt. In a news report carried by DNA newspaper,, it found out that most CEOs’ base salary is actually peanuts and most companies make up for this by matching with the CEO’s performance-linked remuneration like commissions and bonuses. 

Opposing the jostling figures made by the top guns, are the trade unions who demand that Govt should play a dominant role in determining CEO salaries. Senior leaders from Centre of India Trade Unions (CITU) believe that self-regulation is no remedy and suggests that the Govt take help of FICCI and CII to deal with the situation of regulating CEO salaries.

However, there is a difference of opinion among the trade unions as well. Indian National Trade Union Congress (INTUC) is of the view that a reduction in top executives’ salaries may affect the administration as well as the image of the company in the market.

The debate continues…with the pendulum oscillating between the ever-growing divide of the rich and the poor. But, a critical question remains to be answered: why is the issue of CEO salaries so crucial? A definite observation to this question could be linked to the recent economic slowdown where a sustainable social and economic order has been challenged. In a country where basic amenities are still the need of the hour for millions, economic development can only happen once social development is achieved.

Ex- RBI Governor D.Subbarao has categorically remarked, in an interview with Mint newspaper, that compensation packages, especially of large financial institutions, were one of the factors which contributed to the recent global financial crisis. RBI has already said that it will issue guidelines to ensure regulation in the compensation and bonus packages of private and foreign banks.

 

- Suniet Bezbaroowa (views expressed in the article are that of the author)

 

 

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