CEO salaries too high Take a look again

Mumbai, May 27 | Updated: May 28 2007, 06:57am hrs
Prime Minister Manmohan Singh may have stirred a hornets nest by suggesting that India Inc cap salaries of top executives to help curb in-your-face spending, but a quick study shows wealth generated by 100 big companies has been greater than the pay growth of their bosses.

Wealth created by these companies in terms of addition to their market capitalisation has enriched millions of investors. Interestingly, public financial institutions and the government hold significant stakes in several of these companies.

This means the stakeholders have also benefited from wealth generated by companies and their top management.

An FE Research Bureau study reveals that the salaries of top executives (chairmen and managing directors) of 100 major companies increased only 30% to Rs 246.96 crore during 2005-06 from a level of Rs 189.98 crore during 2004-05. Compare this with the big surge in market capitalisation of these companies, and the picture becomes clearer. Investor wealth generated by these companies soared 58.8% (Rs 3,89,785 crore) to Rs 10,52,215 crore on March 31, 2006 from a level of Rs 6,62,430 crore recorded on March 31, 2005. The FE study takes into account only published data until March 31, 2006. But, given the surge in market cap of late, the latest trends are bound to be even more pronounced. In fact, if these 100 companies put their net profits in a bank, they could earn Rs 1,666 crore by way of 3.5% interest, much more than the combined salaries of their CEOs. The average CEO salary bill-total net profit ratio of these 100 companies increased only marginally, from 0.50% in 2004-05 to 0.52% in 2005-06.

Investor Fortunes

Wealth generated by 100 big cos has been greater than the pay growth of their bosses
Salaries of top executives increased only 30% to Rs 246.96 crore during 2005-06
Investor wealth generated by
these companies soared 58.8%
to Rs 10,52,215 crore in 2006
If these cos put their profits in bank, they could earn Rs 1,666 cr on interest, morethan CEOs combined salaries

Consider the specifics. Take the case of Sunil Bharti Mittal, chairman and managing director, Bharti Airtel. His annual salary in the previous financial year was Rs 9.80 crore. His pay packet grew 37.8% compared with salary growth in 2005-06. But, then comes the crunch: his companys market capitalisation increased by a staggering 99.6% (Rs 39,056 crore) at the end of 2005-06, which means investor wealth nearly doubled in a years time.

Or, consider the case of Mukesh Ambani, chairman and managing director of Reliance Industries, the countrys largest private sector firm. His salary, at Rs 24.51 crore (on March 31, 2006), grew 12.8% year-on-year. But the RIL market capitalisation went up 45.8%, or Rs 34,892 crore, in the same period. Investors are not complaining.

ICICI Bank, the countrys largest private sector bank, paid its managing director and CEO KV Kamath Rs 2.48 crore in 2005-06. This was 29.6% higher year-on-year than the salary he took home in the previous year. But ICICI Banks market capitalisation grew a hefty 50% over the previous year, rising by Rs 17,650 crore. The Hero Groups Brijmohan Lall Munjal took home Rs 13.50 crore (up 14.4% from the previous years salary), while his company Hero Hondas market capitalisation rose 62%, adding Rs 6,792 crore.

For Wipro chairman and MD Azim Premji, the trend is even more interesting. Premjis salary declined 24% year-on-year, while his companys market cap rose sharply by 64.8%, or Rs 32,400 crore.