Saturday, April 20, 2013

Corporate Management: It's Time to Make Upper Ceiling to Salaries of CEOs and Managers !

Ever since the advocates of world trade and open business culture became successful in removing the old barriers of salaries and perks paid to the Chief Executive Officers and key management personnel of business entities, the world is witnessing the emergence of a new class of people who draw enormous amounts as their salaries and performance linked pays.

The trend has taken roots in countries like India too, which had followed the socialistic pattern of development in the past many decades.

For example, the ratio of gross remuneration paid to the lowest ranking employee and the highest management personnel in any company never exceeded ten before the Nineties. If the salary of the lowest grade employee was, say Rs. 2500/- per month, the highest salary of say the CEO or Chairman of the company never went more than Rs.25,000/- per month.

But there after the things went almost a free ride for the greedy when the government decided to remove the controls from those corporates which come under the private sector while at the same time such controls remained intact for the public sector and other government controlled sectors.

A typical case is the banking sector. The largest Indian bank which is a Public Sector Undertaking (PSU) has its  Chairman-cum-Managing Director getting a gross annual salary in the range of about three million whereas the second positioned bank which is a Private Sector entity has its CEO, who is much lesser experienced in overall banking sector, getting a monthly salary equivalent to the yearly salary of the former. 

Now the question is whether such a thing is justified ? In both cases, the money from which these management personnel draws the salary comes from the public. In the case of the one holding a higher responsibility the salary is just one tenth of the one holding a lower responsibility ! Now, had the government removed its controls in the case of the former, perhaps that salary also would have gone haywire. That is another matter.

In a similar manner the common people are spellbound when the so-called elite management institutions of the country like the IIMs proudly announce the highest salaries that some of their fresh graduates' were offered by some companies whose businesses are either so strange or not so understandable by the common man. In most cases the highest salaries are offered by such business houses who are doing businesses in the financial services sector. That clearly means that they are in the business of playing with the public money !

For example, the largest private sector bank in India pays its fresh managers hired from the IIMs a gross salary in the range of about Rs.150,000/- per month where as their officers drawn from the second rung institutes are paid just one tenth of that amount. I once met two such fresh officers of this bank. One was hired from one of the IIMs and another from a well known engineering college. The IIM fellow was hired as a fresher who would be posted as the branch manager while the engineering graduate was hired for doing the front office work in the same branch. The IIM fellow got a salary many times more than the engineer guy.

My interactions with them showed that the engineer guy was much more knowledgeable and smarter than the IIM fellow. He had acquired the skills required for handling his job already whereas the IIM fellow was just limping behind with no confidence to handle the responsibility that his company had entrusted with him. But anyway, he was drawing much more than the other one !

I am not criticizing the wisdom of the said bank's top management who had decided to segregate their work force on the basis of the institute from which they are hired by clearly making antagonistic classes of managers within their organization. Whether that was wise or not only time would tell.

But this bank's overall reputation is not good. They are somehow slipping away from scams and other kind of adverse publicity by clever manipulations of higher management circuses. Perhaps that could be the reason that they pay extremely high salaries to those who could do such management circuses.

But even then, is it justified ?

I have just elaborated one case. India is now divided in this. One where the corporates pay exorbitant salaries to a few select people at their whims and fancies where as a good majority in their own organizations are paid peanuts.

Obviously they are taking cue from corporate examples of the leading free market economy in the world that is the USA. But even in that country, wise men have started asking questions regarding the insanity of paying exorbitant salaries to their CEOs and some other top ranking executives or managers while the majority are paid even hundred or thousand times lower salaries.

What these people are going to do with such high salaries that they or their children can never utilize in a few generations ? 

This is greed of the highest order. Just because they are clever and intelligent does not make them rightful to grab the share of others. It should be remembered that cleverness to lead their organizations to success at some juncture cannot justify them to siphon out enormous sums from their organizations for whatever services they had rendered for the organization. That too at the cost of depriving the thousands that work for their organizations.

It is high time that those with a clear thinking should consider these and put a stop to such a menace.

Competence, experience, wisdom and expertise need to be remunerated properly and adequately.

But that should not go to the extend that it goes to the level of loot by the mighty.

I would like my readers to react with their opinions.

1 comment:

  1. There is an interesting thing to be noted. Those who are intellectually clever know the benefits that can come to them by being mutually benevolent to each other.So those companies headed by such persons in their boards could easily get benefits for themselves passed in their respective boards easily. But those small companies where the boards consist of a mix of individuals antagonistic to each other with lower mind capacities would not be in a position to do good to even themselves, forget about others.
    Anyway there is a point in what you highlighted. If broadminded people who care not only for them but also for all were directing our business and governmental organizations, then we would have seen tremendous economic growth in India. Unfortunately, that is not happening !

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