Mumbai: Amid a public debate on the need for moderation in CEO pay, Mukesh Ambani, chairman and managing director of Reliance Industries Ltd (RIL), India’s largest private company by revenue and value, has voluntarily reduced his overall compensation for 2008-09 by 66% to Rs15 crore.
His company termed the decision a “personal example of moderation” in executive compensation.
RIL also announced on Thursday a plan to adopt a “capped structure method” to decide executive compensations, instead of a pure percentage model tagged to its profits. A Reliance spokesperson declined to explain the “capped structure method”.
RIL said in a statement the reduced Rs15 crore compensation for Ambani “is 98% lower than the limit of 5% of the net profit of the company, being approximately Rs805 crore, as per Companies Act”.
Ambani, the world’s seventh richest billionaire according to Forbes magazine, earned about Rs44 crore in 2007-08— Rs42.75 crore from profit-linked commissions and Rs1.27 crore from salary, perquisites and retiral benefits.
RIL finalized its commissions for 2008-09 only recently. Its net profit in the year had climbed to Rs15,637 crore, from Rs15,261 crore a year ago.
Even after the cut in compensation, Ambani, by virtue of being a majority shareholder in the company and its main promoter, will earn a huge annual bounty in dividend and bonus shares announced recently.
He and his family together hold about 49% in RIL, according to data with the Bombay Stock Exchange. RIL’s total dividend outgo for 2008-09 is Rs2,219 crore, which would ensure at least Rs1,100 crore in dividend to the promoters, including Ambani. .
Ambani’s decision coincides with the austerity drive initiated by the Congress-led United Progressive Alliance (UPA) government, and a warning by corporate affairs minister Salman Khursheed to companies against huge compensations for top executives.
Later, Prime Minister Manmohan Singh had clarified the government would leave it to the boards of companies to decide on capping compensations for senior executives.
Several firms in India trimmed salaries or held back increments last year to ride out the recession, but executive pay has remained high despite cuts. In the US, companies, especially underperforming financial services firms, are under pressure to cut salaries of top executives during the recession.
In India, the UPA government has made a public display of austerity by asking its ministers to fly economy class, and even asked external affairs minister S.M. Krishna and minister of state for external affairs Shashi Tharoor to vacate their temporary residences in top hotels for more humble government homes.