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.
Wealth generated by 100 big cos has been greater than the pay growth of their bosses
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.