Pay check

Updated: May 29 2007, 05:30am hrs
As the Indian growth story picks up more steam, the subject of company profit and CEO pay had to come to the fore. That it has been sparked off by the Prime Ministers comments at the CII meet has made it a top draw for comments. But to put Dr Singhs comments in perspective, by asking for restraint on excessive remuneration to promoters and senior executives, he was not trying to encourage shareholder activism. Instead, he was speaking solely in the context of an apparent growing divide in the country. Shareholders cannot claim to be part of the have-nots, in that sense. There is, however, a case for increased space for shareholder rights in India. Company AGMs, more often than not, are fora for orchestrated endorsement of management plans. The few bravehearts who try to spoil the party are muzzled. This is particularly true of family-run businesses. For instance, there have been at least two cases of celebrated family splits in recent years in the domestic corporate sector. But there has been no instance of shareholders asking the company concerned to give a detailed account of relevant developments and the reasons thereof. Yet, it is time the corporate sector acknowledged that transparency for shareholders would improve their image in the global world that most of them now seek to integrate their businesses with. This would also take the sting out of the claim that promoters do themselves far bigger favours than they do other shareholders in remuneration and other benefits.

While making this assertion, it is nobodys case that the CEOs of India Inc are earning far more than the financial performance of their company warrants. As an FE report indicates, in 2005-06, while the salaries of top executives of a sample of 100 big companies grew by 30%, the investor wealth generated by these companies went up by over 58.8%. Theres nothing fishy about this. Business thrives on rewarding those who adopt risk and/or make a difference. And there is no way to specify how these rewards are to be calculated, and certainly nothing to mark out greed. It for those whose capital is at risk to decide. Which is why shareholder vigilance is so necessary.