Regulating Executive Compensation?

It seems that the government is hell-bent upon deriving greater mileage from its “austerity drive”; it now wants to be seen as trying to extend it to the private corporate sector too. The latter has been a bit rattled by the corporate affairs minister Salman Khurshid’s suggestion that “we can hardly say that we (will) shut our eyes on what salary the CEOs [chief executive officers] are going to take”, thereby hinting at the imposition of limits to the “vulgar” salaries of CEOs. But will the government walk the talk?

A study by the Indira Gandhi Institute of Development Research as early as in 1999 for some large private sector firms for the years 1990-91 and 1993-94, following liberalisation of remuneration guidelines revealed that, in real terms, payment had increased only at the upper levels of managerial hierarchy, but had fallen at the lower levels. And now, a recent study by the EPWRF on 277 executives employed in 151 companies and drawing Rs 1 crore or more per annum as remuneration in 2006-07 finds that the aggregate annual payment to them increased from Rs 241 crore in 2002-03 to Rs 791 crore in 2006-07. This marks an increase of 228% in four years, with bulk of this rise seen in the years 2005-06 and 2006-07. Of these 277 executives, only 67 had a similar earning in 2002-03. Moreover, the increase has been most visible in the top-most income bracket. For instance, the study shows that two executives earning Rs 20 crore and above in 2006-07 saw a 2,747% rise in their total salary compared to that in 2002-03.