Let’s discuss CEO compensation

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: Prime Minister Manmohan Singh’s Ten Point Social Charter to industry was entirely in line with the CII’s theme for its annual session. Yet, only one of his ten points—the bit about conspicuous consumption and excessive remuneration—has corporate India all a titter. The pink press has begun to see shades of red in the PM’s remarks. Actually, excessive CEO compensation is very much a 21st century issue, and causes outrage even in developed capitalist economies. 

While Dr Singh made no mention of capping compensation through statute, the US and UK have gone down the road of introducing more disclosure norms and some legislative curbs through shareholder empowerment. Australian Prime Minister John Howard recently said that some CEO salaries were “over the top”. Disgust over excessive CEO compensation is stoked by examples like the $210 million in cash and stock options that Robert L Nardelli of Home Depot took away as part of his exit package after a poor performance. US Senators, especially Democrats, sensed an opportunity to cash in on middle-class anger against excessive pay and perks, and mooted legislation to give shareholders a veto over CEO pay packets if supported by 50% of them. Why

Dr Singh, even President George W Bush said in January that fat pay cheques were getting to be “a problem”. In the US, 51-year-old Meredith Miller, a Connecticut State official in charge of a $24-billion public employee pension fund, has launched a campaign against excessive executive compensation. She recently pushed Morgan Stanley into reworking salaries. Miller has focused on the possible conflict of interest between management and compensation consultants hired by companies. In India too, leading HR consultants quietly admit to such conflict—they get paid a hefty percentage of the compensation and HR officials of some firms routinely demand kickbacks. This is a big incentive to drive up salaries. An undercover investigation into HR practices will lead to some eye-opening revelations even for CEOs themselves.