Column : Steel, salary and a rash of bad news

Subhomoy Bhattacharjee
Posted: Wednesday, Oct 07, 2009 at 2149 hrs IST
Updated: Wednesday, Oct 07, 2009 at 2149 hrs IST

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Column : Please don’t do much

: This is turning out to be the festival season with less than joyous news. While the minister for corporate affairs, Salman Khurshid, has created a controversy about limits to executive pay without any reason, the state governments of Jharkhand and Orissa, India’s richest mining states have given LN Mittal a convenient excuse to cut down on an investment which he will be only too pleased to do.

Let’s look at the salary bill controversy. There is no doubt some CEOs get paid more than what their company would warrant. But then the stock markets often sort them out. Section 19A (2) of the Companies Act clearly states that a company has to obtain shareholder’s approval before setting the pay for the CEO and other members of the board. The annual report of the companies has to list the salaries of executive directors and the sitting fees (at board meetings) for non-executive directors.

All this information is, therefore, public knowledge and available to each shareholder of a company, including those who hold even one share apiece. In addition, each change in compensation packages is conveyed to stock exchanges by listed companies. Since we are not obviously considering the possibility of the entire citizenship of a country voting on the salary levels of the employees of each company, it is difficult to fathom the reason why the minister has spent so much of yard space on the subject.

Even in the proposed new Companies Act shareholder supremacy will continue, as it must. The only impact of the changes is to create uncertainty about whether the government of India is planning to resuscitate its old habit of making companies rush to Delhi to obtain approvals for the same, and therefore the attendant consequences. Just a rider; the supposed fat salary of CEOs in India has not created any of the biggest corporate scams in the country’s recent history, including the Satyam one.

Far away from the world of CEO salaries, Jharkhand and Orissa have blundered their way of a $20 billion deal with steel major Arcelor Mittal. Interestingly, Jharkhand has been quite even-handed between Arcelor Mittal and public sector giant, Sail.

For three years, Sail has been negotiating with the state government to get it to approve supply of iron ore from the Chiria hills that have approximately 2 billion tonnes of iron ore. Sail wants a large part of the reserves...

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Comments

» executive compensation

Posted by Narayanan on 2009-10-07 10:42:17.380744+05:30
As per Act,custom and convention, executive compensation is best left to the shareholder to decide . Both the Shareholder and the CEO are transient entities,what is permanent is a co's business and its standing. When the game is played fair,conventional rules apply,but when top executives falter, either failed by wisdom or driven by over ambition, remedies must be found. Dangling compensation 'packages ' , that are stark invitations to take unhealthy risks in the business to come up with short-term profits in the guise of boosting shareholder value,are invariably accompanied by hidden long-term disasters .To lay the entire burden of excessive compensation to top executives, on the shareholder is less than fair. The hapless shareholder who lost value on his asset at the hands of an adventurous company honcho, may find little solace that it was perhaps out of his folly in overpaying the CEO. Shareholders can not be a cover to pad top level salaries to the extent of inviting vice. Where fair play is getting suspect,the inner ethos and vision of the Company must drive the game, aided by sane oversight of the Regulator / government, as the case may be .

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» Corporate austerity

Posted by Dr B Sundara on 2009-10-07 10:17:27.844449+05:30
The salaries of corporate CEOs, executives, directors are of course made known and approvals of the shareholders are obtained. But most ordinary shareholders do not give much attention to such details. And any serious questioning by shareholders is not taken well and in good spirit. There was news of a shareholder being asked to leave the meeting and sell his shares for questioning one of the CEO of a large company. These CEOs and other executives drive the companies and are the wealth and employment creators. They are the ones who produce many things that the society wants. So there should not be much controversy about their salaries and perks. But should it run into as big as 40-50 crores in a country like India is the question. Extreme disparity in the salaries and wages of different categories of people has created economic and social imbalance and is one of the causes for several social problems that are happening in the country. In creating wealth we make use of people either directly or indirectly. Consumers are also a part, may be a more important part, of wealth creation. Thus wealth generated need to be reasonably well distributed in tune with the contributions. This implies reasonable pays and perks to CEOs as well as others and goods and services to consumers at reasonable cost. But the capitalist mode of economy doesn’t appear to aim at this. Naturally our CEOs would want huge remunerations. It may be advisable for the corporate houses themselves to be reasonable in rewarding the CEOs and others. The remunerations they take must not get the undue and unhealthy attention of others. A measure of austerity keeping in mind the general economic health of the country and the people would definitely go a long way in appreciating and participating in the corporate growth.Then the eastern states of the country are rich in mineral wealth and other natural resources. But unfortunately they have not been making good use of what they have to the benefit of their own people. That is why still the region is backward as compared other regions with less resources. It should be the duty of the political leadership of the regions to realize the wealth of their region and try to exploit for the welfare of the people.

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Column : Steel, salary and a rash of bad news

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