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Government Panel to decide on CEO Salaries – Is it right ?

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Till recession hit globally, India had grown phenomenally at more than 8% per year for couple of years. This was possible due to the growth of many sectors primarily among them – Telecom, IT, Manufacturing to name a few. And this phenomenal growth also led to the ballooning of CEO salaries across organizations across various sectors.

CEO_salaries

This has led to adverse reactions from the general public at large. But more than that, our politicians have created a lot of hullabaloo over this matter over the years. Two recent moves have created more than a flutter among the corporate world –

  • Setting up of a panel having former finance minister Mr. Yashwant Sinha as the head to fix remuneration of CEOs
  • Distinguishing between independent and full time directors in terms of pay scales, benefits etc.

There are two sides to the coin to look at this issue.

Looking at the good intentions of this move –

CEO salaries have risen exorbitantly over the last couple of years which has resulted in a burgeoning gap between them and the middle and lower classes, This move will put an upper limit to that. In a country where still more than 60% of the population is below the poverty line, this move may streamline the salaries of the CEOs.

The recession around the world has resulted in loss of many jobs and having crazy salaries during that period shows the inequality in our society. The move to differentiate between independent and full time directors has been borne most probably out of the Satyam fiasco.

But there a lot of negatives to this move too –

  • Who are the MPs of our country to decide CEO salaries when they themselves keep asking for blatant increases?
  • Many CEOs are paid so much because they deserve it from their work, experience and also the ability to steer organizations continuously ahead of their competitors
  • The differentiation between full time and independent directors could scare away experts who may be hired as independent directors

I personally feel that the crazy salaries of the CEOs are not at all justified. But rather than Government Babu’s deciding a cap, it should probably be a panel of Industry experts and professionals who should…

What do you think about this move?

  1. Aseem Rastogi says

    @all – great to hear your comments regarding this issue..hope someone is listening to this :)

    @altaf love your balanced and comprehensive comments always..:)

  2. Yaamini says

    I agree wit you on this. The govt should not interfere in this. I feel they should not be allowed to decide the CEO salaries

  3. Altaf Rahman says

    My following comments may project me as “anti poor” still as a reader I thought of voicing my view.

    Tell me,
    Just becasue millions of Indians dont have one decent meals a day give a right to the government from disallowing people from eating in 5 star hotels?
    Just becasue millions of people do not have access to decent clothing make a ban on wearing expensive suits and demand them to wear khadi logical?
    Just because many people can not afford even bus ride make a ban on air travel unethical?
    Just becasue many people do not have a roof over their head disallow Mukhesh Ambani from having the most expensive house in the world?

    Same way cieling on CEO (or for that matter any employee) salaries can not be limited just becasue millions live BPL (below poverty line).

    The excuse could have been some thing else logical.

    All this social stigma is due to the culture of inferiority complex of people.

    CEOs (or for that matter any high salaried employee) are not taking salary from the company money pool.

    Companies are agreeing to pay them for their ability (either to birng big profit to company or steer the company ahead of compitition or make innovative leads in business as author said)

    All government can do is may be tax them more and say its government policy. But they can not demand private companies to pay rationed salary.
    Once you restrict financial gains for performance, the creativity dies and every company becomes a governmetn office. Once you do that, people in high positions may resort to taking bribes, unethical practices)

    All this idea (in my openion is communist idiology) The idiology makes look being rich is dirty. owning a big house a blatent show of financial power.
    You can see the same idea in pre80s hindi movies. The bollywood has instilled a view among Indians that the only way a person can get rich is by illegal ways. Except Tata, Birla all oterh rich are bad.

    Times are changing. We not only have slums, we are encouraging expensive houses, sky scrappers, gated communities. We not only have neighborhood kirana shops, we have malls. We not only have PCOs where you have to book your trunk call, we have 3G mobiles sets.

    But we can not blame the politicians. They are the ones who become rich the illegal ways and still believe that only way to riches is unethical ways and want to curtail others from enjoying fruits of technology, modern management ways.

    As I said above, these are my views.

  4. Nilay Agarwal says

    Aseem,
    I feel its should not be the government to decide the Salary of CEOs. Industry experts are also not the right persons to put the cap on CEOs Salary.
    The CEOs are paid so much because they deserve it, they put lots of time, effort and their industry experience to run the company in most effective way. Whenever any wrong thing happens in the company it is the CEO who gets the first blame. They are paid a part of the profit. If they can make huge profit, they can take huge salary also…
    To mark a limit on the CEOs salary is not the right thing to do.

  5. Satinder Panesar says

    I think Govt should NOT interfere at all in this. Moreover, It’s NOT at all Govt job to fix the salaries of CEOs but rather they should Focus on other issues which the country is facing.

    Secondly, I also dont agree that the industry experts should decide who will get how much salary.

    Lastly, I feel, it should be the shareholders who should decide how much they want to pay to CEO, Director, Middle Management coz after all it’s their money, right?

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