Apex chambers differ on Khurshid's call for limiting CEO pay

CII says control call valid and they’re at it, Ficci says keep off

Corporate affairs minister Salman Khurshid’s views on the need to control the salaries of Chief Executive Officers (CEOs) of companies have sparked reactions from the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (Ficci).

CII is likely to issue a voluntary code of conduct, which includes the formation of a remuneration committee for senior executives for its member-companies soon. However, Ficci says it is apprehensive of any move to curb the salary of CEOs, arguing it will invite flight of talent and capital away from the country.

A CII committee on corporate governance headed by former senior bureaucrat Naresh Chandra is likely to recommend the constitution of a remuneration committee, to be entrusted with developing a remuneration policy for both executives at the board level and one level below the board.

“The remuneration committee is likely to have the delegated responsibility for setting the remuneration for all executive directors and the chairman, including any compensation payments, such as retrial benefits or stock options, subject to approval of shareholders,” a CII release said.

A comprehensive report of the Task Force (on corporate governance) is expected soon, which is likely to highlight a set of practices which could be voluntarily adopted by Industry and listed companies in particular, it added.

The CII also referred to the 10-point ‘Social Charter’ outlined by the Prime Minister in 2007 at the Annual Session of CII and said that was a call which Indian industry has been using as a guiding principle.

But, Ficci said any new control over CEO salaries might impel a flight of talent and capital away from the country. In a statement, Ficci president Harsh Pati Singhania said the Ministry of Corporate Affairs, has already issued guidelines for executive pay and the compensation of all directors cannot exceed 11 per cent of the total profits of any company.

“Further, the compensation of all directors, including the Executive Chairman and Whole-time Directors, cannot exceed 10 per cent of the total profit of the company. Norms for calculation of profits for this purpose are also indicated. The Executive remuneration are approved by shareholders and the Board cannot suo motu decide. With government regulations already in place, any further regulation is, in the first place, redundant,” he said.

“We have already seen that 15-20 years ago there was massive brain drain from the nation, as our best and brightest got opportunities to earn many times over in foreign countries, particularly the West.

Talent has to be compensated. India’s past brain drain, IIT/IIM people, are at the helm of global vorporations. They are now willing to work in India, as the compensation has improved,” he said.

The Ficci chief noted that even today the life-cycle payments of CEOs in Western countries are many times more than the payments got by CEOs of Indian companies. On average a 100 times more, he said.

“Any move to push this ratio even further down would be detrimental to the performance of our companies. This will also adversely affect the globali-sation process of the Indian companies which the government wants to encourage.”