Nonprofit, nonpartisan journalism. Supported by readers.


CEO pay in India: “Vulgar and indecent”

BANGALORE, India — India’s politicians are arrayed against the country’s corporate class in a battle over excessive executive compensation, a subject that has recently become extremely sensitive across the globe.

Two top members of Prime Minister Manmohan Singh’s cabinet have cautioned Indian corporations to curb what is deemed “vulgar” pay packages of their executives.

Corporate Affairs minister Salman Khurshed and the Deputy Chairman of India’s Planning Commission Montek Singh Ahluwalia called on the leaders of India’s rising economy to practice austerity.   “Indecent CEO salaries have become a global cause of worry,” Ahluwalia said.

The call has come at a time when investors in the United States and elsewhere are outraged over the multi-million dollar bonuses and fat pay checks of corporate executives.

The subject has become extra sticky since the financial carnage on Wall Street last year and the resulting global economic turmoil.

A proposal to limit salaries and perks of corporate executives came up for discussion at the G20 meeting in Pittsburgh last month.

In India, recently buffeted by a severe drought and devastating floods in addition to the economic downturn, the Congress Party-led Manmohan Singh government has adopted austerity as its governance mantra.

Ministers and bureaucrats have been directed to curtail government spending on frills such as business class travel and pricey banquets. So the government now hopes that Indian corporations will follow suit.

Trade unions have jumped into the debate, demanding that the government cap huge CEO pay deals.  “The government should bring a strict law to deal with this problem.  Self-regulation is no remedy,” said Mohammed Amin, general secretary of the communist-party affiliated union CITU.

Like their global peers, India’s CEOs have fared well despite the economic downturn.  Their compensation packages have soared in the last year. Its fast-growing companies are helping India maintain its position as the second speediest economy in the world after China.

Now irate corporate executives are questioning the government’s right to regulate salaries in the private sector.

Leading industry trade group Assocham’s members said that India could only become an economic power by consistent high economic growth.  “An essential ingredient for high growth is employing the best talent and paying them salaries matching the best across the globe,” the chamber said in a statement.  The statement resulted after a survey of its members.

Assocham said only market forces could determine salaries, which it says is the only means to attract talent in a highly competitive market.

Despite such reasoning, the salary debate is a delicate one in India where the contrast between the rich and poor is enormous.

The highest-paid CEOs in India took home salaries touching a billion dollars in 2008. That was several thousand times the multiple of the average per capita income in the country.

While the salary may not seem a big deal compared with pay in the West, that money can go a long way. Many here find the contrast downright shocking in a poor country where millions subsist on a dollar a day.

The biggest pay checks are drawn by promoters themselves in India’s family-run companies such as Reliance Industries, the petrochemicals conglomerate, and Bharti Airtel, the largest mobile services provider.

Ostentation has been a recent trend in corporate India and its business families, with multi-million dollar homes, extravagant weddings in exotic locales, yachts and executive aircraft.

Even the usually-soft spoken Prime Minister Singh was hard put to remain silent in the face of such brazen displays.  He warned two years ago that such widening inequalities could spawn social unrest in India.

In the land of Gandhi, the world’s foremost ascetic, a debate over austerity and simple living is raging on with no resolution in sight.

You can also learn about all our free newsletter options.

No comments yet

Leave a Reply