MUMBAI: Even as Narayana Murthy expressed his discontent on the manner in which CEO/COO salaries were rising beyond the average median at Infosys, HR industry experts dismiss the existence of such a metric that dictates what’s greed and what’s not. While Murthy talked about compassionate capitalism and how CEO salaries should be reined in, industry experts say it is the competitive nature of an industry, the scale of an organisation and the competencies required in a CEO that should be the deciding factors.
Santrupt Misra, HR director, Aditya Birla Group, said a comparison cannot be drawn between a CEO’s salary and the average manager’s salary in an organisation.
“If you look at the remuneration of a CEO and the size of the business, the first question to ask is, given the size of the business and complexity and the responsibility the CEO has, is the remuneration fair in the market context? You cannot take a philosophical position on a CEO’s compensation in reference to what other managers get paid. A comparison cannot be drawn between the two.”
Experts believe the pay gap between the CEO and the average median will only widen going forward. Sonal Agrawal, managing partner, Accord Group India, said, “A CEO’s compensation is linked to the scale and complexity in the context of a particular industry or market. The multiple between a CEO’s salary and the average median will vary tremendously across markets, industries and companies. There is unlikely to be a single number as a benchmark to decide a CEO’s compensation based on what the median average in an organisation is, and it’s subjective to construe that anything above that number can be described as greed.”
Agrawal said organisations can set up a construct for performance metrics that drive CEO salaries based on the shareholder’s short-term and long-term objectives. “Broadly speaking, CEOs will be paid basis the value they create and what the market for their skills are. A well constructed performance metric should drive behaviour that makes a good company great. By the same yardstick, if one says a CEO earning a certain compensation beyond a certain level is greed, do we also similarly categorise the value and returns created by the CEO for the company and shareholders?” asked Agrawal. She added, “Individuals and shareholders can always drive socialistic goals through appropriate use of dividends.”
K Sudarshan, managing partner – India, and regional VP – Asia, EMA Partners, said, “Given the kind of skill sets, capabilities and bandwidth required for a CEO, it would be unfair to compare his/her salary to the entry-level candidate or an average median in an organisation.”
Experts questioned Murthy’s definition of compassionate compensation as well.
“If the compensation is within the market benchmarking, no matter how large the number may look, it cannot be considered outrageous unless the company is loss-making and others are not getting market-benchmarked compensation. Just because a CEO is paid a high compensation, that does not mean he/she is not engaging in socially constructive activities, which is what compassionate capitalism is all about. Each has his/her way of contributing to society and being conscientious,” said Misra.
In a country where altruism is lauded and greed shunned, should CEOs in big compensation brackets be remorseful? “CEOs should not feel guilty about taking home huge pay packets. They also take on a commensurate amount of accountability and pressure that comes along with such a responsibility,” said Sudarshan.