International BusinessSetting 'example', Mukesh takes pay cut
Reliance Industries (RIL) Chairman Mukesh Ambani has decided to take a big pay cut. His pay for 2008-09 has come down by 66 per cent, or nearly two-thirds, to Rs 15 crore from Rs 44 crore in the previous year.
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“This year’s compensation for Mukesh Ambani, of Rs 15 crore, is 98 per cent lower than the limit of 5 per cent of the net profit of the company, being approximately Rs 805 crore, according to the Companies Act,” RIL said in a media statement.
This means Mukesh Ambani has slipped from the top position in terms of absolute salary to the 16th position (see table). His brother Anil Ambani’s 2008-09 salary is, however, not known yet.
The action by the elder Ambani comes at a time when a debate is on whether there should be a regulation on CEO salaries.
Earlier this month, Corporate Affairs Minister Salman Khurshid and later Planning Commission Deputy Chairman Montek Singh Ahluwalia had expressed concern over company heads being paid “indecent salaries”.
The Remuneration Committee of the RIL board also decided on a new structure for salaries and remuneration of top executives, wherein the pay packets would be capped, as against the prevailing system of commission-linked profits where variable factor in the pay has been increased.
According to Shiv Agrawal, CEO, ABC Consultants, a head-hunting firm, salaries of Indian CEOs are not equitable or socially acceptable. “We saw an increase of crorepatis in the year-ended March 2009. There were 640 directors of listed companies who took home in excess of Rs 1 crore (Rs 10 million) in total remuneration compared to 570 in the previous year.”
“Against an average per capita income of around Rs 100 a day, we have some CEOs who make more than Rs 12,00,000 a day,” adds Agrawal.
However, R Suresh, MD, Stanton Chase says that CEO compensation in India has been commensurate to the growth in size and scale of operations.
“If today"s CEO earns Rs 1 crore for managing a Rs 1,000-crore (Rs 10 billion) business, no one can say this is undeserving. Apart from this compensation, there are other throw-ins such as stock options and long-term bonuses — the rationale behind these additional sops is not to over-compensate the CEO, but to ensure that there is a long-term commitment to the firm,” says Suresh.