It seems that CII (Confederation of Indian Industries) may soon decide not to invite politicians to their parties, summits, meetings, or whatever... First it was Mani Shankar Aiyer in April, who raised the question:
"Industry has been enormously benefited by the processes of economic reform that we have seen in this country over the last 15 years or so. But the benefits of these reforms have gone so disproportionately to those who are the most passionate advocates of reforms that every five years we are given a slap in the face for having done what the CII regards as self-evidently the right thing for this country."
...and then, last week, it was Manmohan Singh, the Prime Minister himself, who in his Ten Point Social Charter, gave a not-so-gentle reminder to the CII members about their social responsibility: "corporate social responsibility must not be defined by tax planning strategies alone".
Predictably, among all the other points, it was the fourth point about the CEO salaries - i.e., about "excessive remuneration", "conspicuous consumption", "vulgar display of wealth", "ostentatious expenditure", etc. - that caused much flutter...
(I used the term "Predictably", since all other nine-points were about the nice things that the industry should be doing. This was the only one which mentioned what the audience of CII conference, the CEOs, should not be doing. This is what he said:
"...Four, resist excessive remuneration to promoters and senior executives and discourage conspicuous consumption. In a country with extreme poverty, industry needs to be moderate in the emoluments levels it adopts. Rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest. The electronic media carries the lifestyles of the rich and famous into every village and every slum. Media often highlights the vulgar display of their wealth. An area of great concern is the level of ostentatious expenditure on weddings and other family events. Such vulgarity insults the poverty of the less privileged, it is socially wasteful and it plants seeds of resentment in the minds of the have-nots."
The "damage control" started immediately. Sunil Mittal, CII's newly elected chief, complemented the Prime Minister for his "unusual and landmark" speech, but also pointed out the CEOs' salaries "cannot be legislated", since there is a crunch of talent.
Financial Express was quick to point out that its research on the salary increase of top 100 CEOs ("only 30%" increase from Rs 189.98cr to Rs 246.96cr between 2005 and 2006) shows that "wealth generated by 100 big companies has been greater than the pay growth of their bosses." - FE's criteria of "wealth generation", however, was not profits/sales of the companies, but the increase in their market-capitalisation (and that too duing one year!)... I am not sure why FE did not look at profits, turnover, or other more tangible and sustainable criteria of corporate performance to prove its point...
Mainstream media also went into a spin to point out the wasteful government expenditure, and/or why Manmohan Singh had to make this speech after his party was rejected by the "aam aadmi" in the UP election, and/or his speech was like a simplistic Sunday sermon, etc., etc...
...all of which may - or may not - be valid reasons to reject the suggestion. However, even if one acknowledges these counter-arguments as valid, and that if industry has to become competitive, there should not be a bar on CEO salaries to attract the world-class talent, it is worth asking the question:
Do the Highly-Paid Indian CEOs Really Add/Create Value to Business?
The only comprehensive study which related the CEO salary and corporate performance, that I could recall, was done by two of my colleagues - Profs Ramkumar Kakani and Pranabesh Ray - a few years back. A report on the study - titled CEO Salaries Outstrip Growth of Profits (The Hindu BusinessLine, Aug 9, 2002) - can be accessed here.
A two part article by the authors can be accessed here (Part 1) and here (Part 2).
I find this study more comprehensive because:
Quoting from the findings:
Conclusion of the Study:
"It implies that while the compensation for the CEOs has increased, this has not resulted in a positive change in the performance from the point of view of all other stakeholders including equity shareholders. This in fact raises the question of justification in the phenomenal rise in managerial remuneration."