Paying Our Corporate Honchos - More or Less

Recently the Union Minister Mr. Salman Khurshid's comments on the executive remuneration in the corporate world in the light of economic recession that has gripped several parts of the globe, has sparked off a raging debate on the need to have some kind regulation in this regard. The debate is not new one. In fact, the Companies Act,1956 has elaborate provisions and rules which were framed with the sole purpose of regulating remuneration for the directors of the companies. The Minister's comments drew sharp reactions from some prominent office bearers of various chambers of commerce and in the corporate circle. Mr. Khurshid's display of annoyance on what he went on to describe as “vulgar” remuneration which some of the members of the board of directors fix and earn for themselves has to be seen in the context of his party's declared austerity drive in government expenditure.

The proponents of giving more freedom to the respective corporate boards in deciding the quantum of remuneration to be given to their super managers according to financial capacities of these companies, advance the argument that in order to attract and retain best managerial talents, the companies have to devise suitable remuneration in this regard. However convincing the logic of this argument may one has to look at the other side. Although the shareholders' or stakeholders' democracy is recognised in the Companies Act forms the bedrock of corporate administration. It only holds good in theory. The objective realities portray a completely different picture. It is always a select minority which take all important decisions. And the professional directors who have fixed tenures after the expiry join even rival companies. While they are rewarded very handsomely during their terms based on so-called appraisal of performance but the loss , harm or injury which a company may suffer subsequent to the expiry of their terms, because of wrong judgment, they are not known to have been held accountable and asked to make good such loss.

The recent meltdown in United States has shown how some of leading private sector banks went broke on the sub prime mortgage issue because of gross lack of foresight, unhealthy competition, greed on the part of the management Which spelt doom for these outfits and not a single member of the top management has been put in the dock. In fact, we have seen the sordid spectacle of management declaring hefty bonuses for these selfish people out of bail-out financial package provided by the government. I think the Minister's statement has come at the right time and some kind of governmental control is always desirable in this respect.