April 27th, 2016, IIF Delhi & G-Noida : Some of the highest paid CEOs of some companies in India are getting remuneration ranging from Rs. 30 crores to 59 crores per annum as compared to Rs. 30 lakh p.a. being paid to CEOs of PSUs, Public sector Banks and other Senior Government officials in India

There is an urgent need for fixing limits on remuneration of CEO’s of private sector in wake of mounting NPAs urged Professor J.D.Agarwal, Chairman, Indian Institute of Finance. According to him payment of crores of Rupees as remuneration ranging a few crore ranging from 30 to 60 crores per year to CEOs of companies in private sector as compared to Rs. 20 to 30 lakh per annum to CEO of PSUs or Public sector banks or Senior most government officials is not justified. It is matter of serious concern. It distorts principles of equity, social justice and results in loosing competitive cost advantage of Indian Industry. Exorbitant employees cost is also detrimental to India’s growth story and breeds corruption, feels Dr. Agarwal.

According to Dr. Agarwal, a public limited company or an organisation which is primarily financed by shareholders money and from loans from banks and financial institutions, is a public institution. Most companies in India have financed their operations by taking thousands of crores of loans from banks, financial institutions with a very high debt equity ratio. Most of these companies are paying hefty salaries to their executives including CEOs, which are many fold higher than their counterparts in public sector enterprises, public sector banks and government. Many of these companies are responsible for Non-Performing Assets (NPAs) by not repaying loans and interest in time making banks and financial institutions suffer financially. The cases of various CEOs getting salaries running in Crores per annum, as compared to their counter parts in PSUs, Public sector banks, government getting paid in Lakhs. For example Reserve Bank of India (RBI’s) Governor getting a remuneration of about Rs.30 lakhs per annum as compared to Chanda Kocher of ICICI Bank or Aditiya Puri of HDFC Bank getting remuneration in crores.

Professor J.D.Agarwal, Chairman, Indian Institute of Finance (IIF) has urged upon the government to fix maximum remuneration in the private sector for CEOs including banks, public limited companies, education institutions and private universities comparatively at par with their counterparts in Public sector or government. There should also be a fixation of remuneration of executives working in these organisations at different levels, including CEOs, equivalent to or at par with their counterparts in public sector undertakings, public sector banks, central government. With considerations of equity, social justice and, reducing demotivating effect on officers of PSUs, Public sector Banks and government officers.and the resultant corruption. At times it is found that young entrants in the industry are paid remuneration many fold of what one gets at the peak of his job as CEO in PSUs or Public sector bank. One may wonder if a part of payment is to one of his relations or father holding influential position in government or politics who could be useful for such company at some stage.

However, Dr. Agarwal feels that after fixing the upper limit for remuneration, for all levels in private sector, to promote efficiency and effectiveness, an incentive of profit sharing on the net profit may be evolved based on profit sharing or commission, or bonus etc for all levels including CEOs.

Dr. Agarwal opined that any company/organisation defaulting to repay loans causing intentional/unintentional NPAs should be asked to reduce remuneration of the staff to reduce the burden of losses and repay loan from savings. All companies responsible for NPAs should be asked to adhere to expenditure control exercise.

It is the sole responsibility of the government to ensure that the nation’s/public money is not used by unscrupulous people for their private gains at the cost of the nation and the public felt Dr. Agarwal.

Dr. Agarwal feels that in country which is facing extreme form of draught, millions of people do not have enough potable water and 30% live below poverty line, what is the justification for someone to get 60 Cr per annum.

According to him, market driven economic system has widened the gap and inequalities of income and wealth to disastrous level and made Indian industry non-competitive due to high employee cost.

India can ill afford such distortions.

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Update: