Sense at last!

Updated: Nov 21 2005, 05:30am hrs
The move to let companies decide the pay of directors and other managerial personnel without government interference is a correct step. The practice of government fixing a ceiling on remuneration in the private sector is a vestige of our socialist days, when words like profit and wealth were considered bad. It has no place in a modernising and globalising economy. Shareholders and their appointees are the best placed to decide what top-level employees are worth. Let the shareholders or their trusted representativeslike the remuneration committee, as suggested by the JJ Irani panelreward those who perform and punish those who do not.

There is a need to make the process of determining compensation as transparent as possible. This will ensure fairness and avoid bad blood that could only harm the body corporate. Reports say the proposed new Companies Act will compel firms to publicly articulate policies governing directors remuneration. Any enhancement would be linked to performance, which would be gauged under public gaze. This would be bad news for the laggards. Particularly those who happen to occupy PSU board slots only by virtue of office and sans any professional skills relevant to the management of these companies.

With globalisation, companies are eagerly scouting for specialised manpower. The search for talent is more global than ever before. The stakes are especially huge for corporates in highly competitive businesses. Sound managerial advice is something they would willingly pay for. Apart from which, directors are increasingly held liable for actions of the company to which they were party. In such a scenario, it is only meet that they be adequately compensated. Companies are best placed to decide how much they want to pay for scarce talent. Considering that domestic regulations are being recast to provide sufficient room for independence on corporate boards, governance practices are set to improve. At this juncture, shareholders eminently deserve a free hand in fixing managerial compensation.