Indian bosses are overpaid. Do they deserve it? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Indian bosses are overpaid. Do they deserve it? 

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In this issue:
» India best amongst emerging markets?
» Loss of faith in currencies is good for gold
» Highway projects spell good times for industries beyond infra space
» Worrisome week for global markets
» ...and more!

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00:00
 
There is an innate tendency in human beings to compare their paychecks to that of others. There is a bigger tendency to compare it with their global counterparts. Most of us have done this at some point of time or the other and cribbed about how underpaid we are. But is this true for every salary class?

A survey conducted by a leading daily compared the salaries of top bosses and CEOs in India with that of their global counterparts. The results stated that when salaries of top bosses in India were compared to their US counterparts, it was realized that the Indians were being paid at par. Among companies that are profitable and/or promoter owned, the pay scales are comparable to that in US. As per the survey, the average compensation of the top 20 Indian CEOs stands at US$ 9 m which is just 25% less than that of the US top 20 average of US$ 11.4 m. (The salary is adjusted for purchasing power parity and excludes stock options).

But the size of the businesses managed by US CEOs is much bigger than that managed by Indian CEOs. An example of this is that of Bharti Airtel. Its CEO, Mr Sunil Bharti Mittal is paid a whopping US$ 13.5 m for managing a company that had clocked US$ 13.3 bn in revenues in the last financial year (ended March 2011). Compare this with the US$ 10.8 m given to the CEO of IBM for managing a business that clocked US$ 102 bn in revenues. It does appear that Indian CEOs are highly overpaid for doing a fraction of a job done by their US counterparts.

One may argue that Indians need to be paid more as they face more difficult conditions in terms of domestic rules and regulations. However, this is true in any country. The local rules and regulations are always stiff. So why pay the Indian CEOs so much? Would it not be better to remunerate them on the basis of the size of businesses managed by them? And give them a bonus only when the company itself performs well. Only then would Indian companies become truly competitive on a global scale.

Do you think Indian CEOs pays should be linked to their performance as well as the size of business managed by them? Share your comments with us or post your views on our Facebook page.

01:15  Chart of the day
 
The recent spate of scams, particularly the telecom scandal, brought to light the lack of corporate governance in Indian companies. The resultant enquiry pointed fingers at even the most ethical corporate names. Therefore, we decided to run a poll with our readers to see which corporate house is considered most trustworthy by them. Today's chart of the day presents the results of our poll so far. Our readers appear to have unanimously chosen the Tata Group as the most trustworthy name. The Ambani brothers combined and a few other groups were perceived to be trustworthy by only a small group of people. We request you to participate in the survey and make it more representative of reality. Please click on the following link to take part in this poll.

Data source: Equitymaster poll survey

01:50
 
If ever there is a list made on investment bankers that dare to call a spade a spade, we are quite sure that it will not be very long. However, one name that is almost certainly likely to make the cut is that of Stephen Roach. Hence, we are all ears whenever the famed economist has to say something. Even though we may agree or not agree with him. This time however we were in complete agreement when Roach, a non-executive Chairman for Morgan Stanley Asia, opined recently that India is ahead of most emerging markets. In what way? Well, in terms of having a strong internal demand rather than being dependent on external demand. Roach has argued that economic growth is likely to remain weak in most developed economies over the next 3-5 years. Thus, emerging economies that derive a good amount of their GDP from these developed nations are in for some really challenging times. India's GDP composition is different in the sense that most of the growth comes from internal demand. And hence, the Indian economy is way ahead of its emerging market peers as per Roach. The veteran economist is not the only one bullish on India though. SBI, one of India's largest asset management companies also shares a similar thought and has in fact, called India as a stock-picker's paradise. However, it does not see any major move in the share indices in the near term

02:25
 
Investors are continuing to worry about the state of the PIIGS (Portugal, Ireland, Italy, Greece and Spain). US negotiations to increase their debt ceiling and maintain their AAA rating have also not reached any conclusions. In the midst of all this uncertainty there is however one golden lining. Gold prices are hitting new highs almost every other day due to a growing lack of trust in paper currencies. Bullion prices would also see an increase if the Fed undertakes a new round of quantitative easing. With everything falling apart, gold is the only safe haven investors have to cling on to.

03:00
 
Announcements. This is what National Highway's Authority of India (NHAI) seems to be doing since ages. And here comes another one. NHAI has made an announcement to award approximately 8,000 km of highway projects in the current financial year. As a result, cement, steel and bitumen companies are likely to get a boost. In fact, it may also increase the country's import bill as some of these raw materials are imported from overseas markets.

However, we are not too buoyed by this yet another fancy announcement. In the past, NHAI has made several announcements with respect to awarding road projects but has not been successful in meeting those targets. Recently, the road ministry had set a target to construct 20 km of highway per day. And we all know how miserably it has failed on this front. So, unless the announcements result into ultimate project award backed by execution, we attach little importance to this numbers game. Right now, land acquisition and environmental issues have been impacting the execution cycle. Bureaucratic hassles have affected the project award activity. Unless the ministry works out an amicable solution to these issues, the ambitious announcement figures would remain just that - ambitious.

03:55
 
Investors the world over have a lot to worry about not just this week but in the months ahead. This is because for starters, the economic situation appears to be worsening in the US. The country's treasury bonds, which have so far been considered as the safest investment haven, stand the risk of getting downgraded. US' mounting debt? has raised concerns over its ability to service the same and hence, rating agencies have warned the world's largest economy of possible rating downgrades. What is making matters worse for the US is the political deadlock at the centre as the government is finding it difficult to arrive at a consensus as far as the debt ceiling is concerned. Another problem for the US is its housing market and latest economic data has shown that this area continues to languish in a deep rut. In the meanwhile, in Europe, euro zone leaders will meet this week to discuss a second bailout package for Greece and the financial stability of the euro area. Indeed, the developed world has some serious thinking to do as far as their debt problems are concerned. That is why we believe that problems on the debt front will continue to persist for some time to come.

04:40
 
The Indian stock markets could not maintain the early gains that they recorded at the time of opening. At the time of writing, the benchmark BSE Sensex was down by 3.7 points (0.02%). Stocks from the technology and auto sector are trading weak. Asian stock markets were trading in the red with Malaysia and South Korea leading the losers' pack. However, markets in Japan and Indonesia closed on a firm note. Europe has opened on a negative note with the exception of Germany, which has opened on a positive note.

04:55  Today's investing mantra
"Many investors seem to have forgotten the hard reality. There are frequent periods when the stock markets don't do much." - Jim Rogers
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23 Responses to "Indian bosses are overpaid. Do they deserve it?"

Ajit Gautam

Jul 24, 2011

These comments are more to do with some individual points and not with the overall topic:
a) What is the PPP adj factor 45 or 10
b) What did the IBM CEO earn when his revenues were $ 15B
c) Why compare size with size - what is the basis.What is Mittals salary out of the profits of the company
d) How much does each CEO own the company - obviously Mittal is more than IBM CEO. So he could be paying himself dalary instead of dividend - what is wrong if it has Board approval

Like 

k.k.sharma

Jul 19, 2011

yes I agree that indian ceo are highly paid. take a example of jpassociat. what return this company has given to its shareholders in last two years?? but its ceo has proposed to hike his salary. it is just ridiculous. these ceo's has no moral to increase their wages and salaries if they are unable to give return to its shareholders. I request all shareholders to register their strong protest against this tendency.

Like 

tkrishk

Jul 19, 2011

The given example of Sunil Mittal ....is also the Biggest share holder/Promoter. So are the Ambanis....therefore their salaries tend to be higher.

Can we have the analysis of professional (Non promotor /no relative) who are CEOs and check their salaries

Like 

Anish

Jul 19, 2011

I agree with Royx35 and VJS.

But the divide between have and have nots is increasing in India.

I urge the ones reading this to support micro-finance initiatives.

Like 

J.sreenivasanPOtti

Jul 19, 2011

SurelyIndianCEOsareoverpaiddisproportionate to the turnover/business prospective of the similar firms abroad.
The difference of 5 years pay could lead the company into
higher levels and income to shareholders.

Like 

Krishna Kanth

Jul 18, 2011

Linking managerial remuneration to performance !! I think that's what certain sections of the Companies Act sought to do. Taking remuneration in many proportions over & above the justified sum, in whatsoever fanciful names it may be, is, to me, a violation of Corporate governance. This questions the very basic democratic credentials of the corporate form of business.

The remuneration drawn by a sole proprietor may not be compared with that of his employee or servant. But the remuneration of CEO should definitely stand a justified comparison with that of his counterparts, colleagues & fellow stakeholders.

Remunerations disproportionate with the size & performance of the business are not justified under any circumstances.

Like 

saurav jha

Jul 18, 2011

What Royx35 has said is fully agreeable according to my views. A ratio of 100:1 to 200:1 is admittable but beyond that is the violation of humanity......

Like 

krisham51

Jul 18, 2011

Yes .they are paid very highly mostly for copying business models developed by others.They are just adapted for Indian conditions. Barring a few exceptions ,there are hardly any
developments which are copied by others.for this job they are paid far too heavily.And most of the managing is done by
people at much junior level who are by no means highly paid.take the case of IT industry.it only using various software developed by the west efficiently.
salaries must be limited to the size of businesses. this will also curb multiple companies to avoid tax .

Like 

sethu

Jul 18, 2011

most of the CEO s do not deserve the salary being paid.It should certainly be linked to performance.more over in India most of the personal expenses are also covered by the corporation under some head or other.

Like 

Anand Varwani

Jul 18, 2011

Yes, I cannot agree more on this. The CEO's are really overpaid. In case the promoter is the CEO, I would say it partially justifies the high compensation, though it still is the public money and can still be viewed seriously from the competition point of view. In case the CEO is a professional and paid ridiculously high, he simply is either enjoying "contacts and network" or the hardwork of people down below.

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