Why unseemly high salaries of super CEOs need to be split in three ways

Mindboggling CEO salaries have always raised strong emotions in India where inter se fairness among various stakeholders is more keenly felt than in the USA where winner-takes- it-all approach is approved of by the society inured to laissez-faire. Its recent manifestation in India has been at IT majors Infosys and Tata Consultancy Services Ltd (TCS). Infosys CEO Vishal Sikkha was paid Rs 49 crore for the financial year 2015-16 that represented 935 times the median salary of the company for the same period. And last week, TCS paid its CEO, Chandrashekaran, Rs 25.6 crore in addition to a one time special bonus of Rs 10 crore that constituted a 459.84 jump over the median level, worsting the last year level of 416 times. Vishal Sikkha was a sort of turn-round specialist. But that does not justify the jo-jeetha- woh-sikander (winner takes it all) approach. [caption id=“attachment_2794000” align=“alignleft” width=“380”] Reuters[/caption] Emotions run higher when husband and wife team of CEOs go on a rampage as in the case of Jindal Steel and Power and Sun TV Network. These are family-run concerns and the glib explanation offered is the promoters are the risk-takers who must be suitably rewarded. This misses the wood for trees– -for risk taking compensation lies elsewhere like dividend, bonus etc from shareholding. Be that it is not only heartburn on the part of the other stakeholders—- other employees and shareholders—that must halt the rampaging CEOs on the track but a sense of fairness and the need for an equitable distribution. It is none of the business of other stakeholders like government, banks, debenture holders, etc., but it is very much the business of other employees and shareholders to question such largesse to the CEO. That such largesse is blessed by the remuneration committee supposed to be dispassionate is beside the point. A simple formula could work. Let us say the median salary is Rs 5 lakh and the CEO salary proposed is Rs 50 crore, constituting a 1000 time differential. This is not only unjust but unseemly as well. The excess over the median i.e. Rs 49.95 crore should be divided neatly among the shareholders, the CEO and other employees equally. This at once would assuage the feelings of the shareholders. To be sure, it may not translate into a great dividend or additional dividend but send the right signals that their contribution and forbearance have not gone unrecognised. Similarly, this may not increase the salary of lesser employees significantly especially in a large sized establishment like an IT company but it would once again assuage their feelings and reduce their heartburn besides making them feel that their contributions haven’t gone unrecognised. The CEO gets to hog the remaining one-third for himself though he may be peeved that he hasn’t got the full pie for himself. But then his vaulting ambitions have to yield to team interest. The redoubtable Narayana Murthy one of the founders of Infosys was booed some ten years ago when he pontificated before the distinguished CII audience that a CEO in all fairness should not take more than 15 times the lowest salary. That might not attract right talents though an eminently fair measure to divide the pie among employees. Sharing the super salary with other employees and shareholders may not be as much resented by the CEO. Of course he might egg the remuneration committee to earmark more for him but there is a limit upto which it would be able to oblige and massage his ego. The above formula would be a constant reminder that CEO must be the first among equals. Of course the formula adumbrated herein is not the only inviolate and perfect formula. To be sure, there may be better ones or variants of the above but none of them should give a short shrift to the other employees and shareholders.