Afternoon D & C Dedicated To Mumbai
Home > Edit > How much should you pay a CEO in India?

How much should you pay a CEO in India?

Tuesday, February 05, 2019
By Jagdish Rattanani

Ms. Chanda Kochhar is now facing the full brunt of a wide-ranging investigation. Multiple agencies are poised to probe deep into a case that the worthies on the ICICI Board dismissed not too long ago. ICICI Bank has a new CEO since October 2018. The bank under him has moved with full force against Kochhar, once the internal inquiry report concluded that she was in “violation of the ICICI Bank Code of Conduct, its framework for dealing with conflict of interest and fiduciary duties, and in terms of applicable Indian laws, rules and regulations.” The bank was left with no other option. This is a traumatic end to what was a glittering career for the leading woman banker of the nation. She was a leader that many looked up to as a symbol of what a woman could achieve in the male-dominated world of high finance. The legal and administrative battles that have begun will take long to sort out. While we await those outcomes, the case brings out a less-debated issue in India. This is about the level of compensation for our business leaders, questions on what these compensation packages achieve, the growing gap between the highest and the lowest paid and what this means for us as a society.

Huge rewards
The amount that Kochhar is being asked to give up because she is now not deemed to have resigned but stands sacked (“‘Termination for Cause’ under the Bank’s internal policies, schemes and the Code of Conduct”) is huge by Indian standards.  The bank is reported to have awarded her “performance” bonuses to the tune of Rs 9.82 crore between 2009 and 2018. Stock options offered to  Kochar are to the tune of Rs 200 crore. The numbers are not unknown; it’s just that they have surfaced in the headlines along with the case. It is not immediately clear how much of that will have to be returned. In a statement, ICICI Bank said her removal comes with “all attendant consequences (including revocation of all her existing and future entitlements such as any unpaid amounts, unpaid bonuses or increments, unvested and vested and unexercised stock options, and medical benefits)…” It requires the “clawback of all bonuses paid from April 2009 until March 2018, and to take such further actions as may be warranted in the matter…” If this “clawback” is successfully enforced, it will mean a substantial financial hit for the former CEO and will set a new mark for punitive action against business leaders who are deemed to have overstepped boundaries and crossed the line of the law or violated the company code.

How much is too much
Away from the case of Kochhar, the question that needs to be asked in general and in the Indian context is this: How much is too much pay for a CEO in a country that, all said and done, is still poor. It would be unfair to blame Kochhar on this one – she merely took what the bank policy allowed her to in terms of bonuses etc. But that just begs the question on what compensation of this order achieves and the implications of a CEO being rewarded way beyond and out of sync with the rest of the organisation. Some of the data on the gap is quite interesting, as pointed out in a study released last year by the Institutional Investor Advisory Services (IIAS). Consider the following:

  • In the past five years, CEO salaries in the S&P BSE 500 companies have outpaced performance.
  • For S&P 500, the CEO pay was 88 times the median employee pay. It was 122x for the BSE Sensex companies.
  • Sectors like construction fared worse – the CEO pay stood at 147x and 124x for construction materials sector and the healthcare sector, respectively, from among the S&P 500.
  • Private bank CEOs earned 66x of median employee pay – so in that they were not the leaders.
  • Nineteen per cent of BSE 500 CEOs were paid more than Rs.10 crores. For private banks, 36 per cent of CEOs got more than Rs.10 crores.
  • The CEOs took almost double the other Executive Directors in most cases, save in the PSUs.

As the report noted: “An equitable and inclusive culture is at the heart of any successful organisation. Boards therefore need to proactively address these discriminatory pay practices and ensure fairness. Failure to do so might ignite employee resentment and harm productivity in the long run.”

US as a bad model
The gap is far less than that seen in the US. The Economic Policy Institute (a US-based non-profit, nonpartisan think tank created in 1986 to include the point of view of low- and middle-income workers) reported last year that “CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000).”

India is not the US but we appear to be headed that way. This cannot be good news for the Indian economy, looked at from several angles. It means that Indian businesses celebrate the idea of a heroic CEO who can supercharge the corporation to new heights, and is at least to be paid twice as much as the immediate next in line, and 100 times more than the median. The lone ranger CEO magically leading the organisation is a well-known myth. This is more a power CEO who is questioned less in an orgnisation that is led from the top with the CEO therefore more inclined to trip or take a wrong turn. This is a business run at the whim of the so-called “HIPPO” – the highest paid person’s opinion. This cannot be the democratically run place where ideas clash, innovation thrives or the bosses are called out.

More often than not, this is the CEO getting paid because s/he can get away with it and there are not enough questions from within the organisation and from the Indian economic system. There is the other idea of the decency, grace and balance in pay in a country like India, where workers are often and in these times almost always denied bargaining rights, union leadership has been broken and contractisation ensures that an effective hire-and-fire policy rules at the lower levels. This is, of course, a complex subject but there remains a good case for moving toward a fair ceiling on pay – of professionals and of promoters. That can make for a fairer setup and one in which the CEO is less likely to have a swollen head and is therefore less likely to fall.

The writer is a journalist and a faculty member at SPJIMR. Views are personal
Syndicate: The Billion Press

No Comments Posted
City news
A total of 323 candidates, including Union Minist
Cash and liquor worth Rs 126.64 crore seized ...
Illegal hawkers on local and long distance trains
We are convinced that children need to be educate
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)You are likely to remain careful and watchful today, foretells Ganesha. And because you'll be invited to parties and other social events, your enthusiasm will remain buoyant. You will also strike the right balance between business and pleasure, says Ganesha.
- Advertising -
St Xavier’s High School Fort celebrates its sesqu
Sarab Matharu uses vertical farming to fruitfully
Hindustani Classical Music Santoor Legend Pandit
Read More