Chennai/Mumbai: Abooming economy is throwing up some unlikely top earners.
Promoter and managing director of Madras Cements LtdP.R. Ramasubrahmaneya Rajha has emerged the highest paid executive in India, earning Rs24.78 crore for the year ended March, a little more than the amount Mukesh Ambani, chairman of Reliance Industries Ltd, took home a year ago.
Rajha topped the compensation list in a study of 1,340 publicly listed companies that have thus far released their annual reports for 2006-07.
Ambani’s pay for 2006-07 hasn’t been revealed yet, although he made Rs24.51crore in 2005-06.
Other top paymasters included Sun TV, the market leader among satellite channel in Tamil Nadu, which paid Kalanithi Maran and Kavery Kalanithi, its two top executives, a combined Rs46.52 crore. That’s higher that the Rs14.96 crore that one of India’s most high-profile executives, Sunil Mittal, founder of Bharti Airtel Ltd and president of the Confederation of Indian Industry, earned in that period.
Rajha of Madras Cements, the second largest cement manufacturer in the South, breaks the previous record for top pay in a cement firm held by Anil Singhvi, former managing director of Ambuja Cement Ltd, who earned Rs14.04 crore in the fiscal year ended March 2006. Singhvi has since resigned from the firm.
None of these figures include shares granted or the dividend income on these shares.
“Salaries might seem higher but he (the managing director of Madras Cements) is the promoter of a company which is the second largest cement player in the South and is looking at doubling capacity by 2010. The premium in salary is justified,” said Rupesh Sankle, an analyst tracking the cement industry at ICICI Direct, an online brokerage.
Traditional manufacturing firms such as vehicle makers also upped executive pay. Hero Honda Motors Ltd, the leader in the two-wheeler market in India, paid its top three people a combined Rs41.33 crore.
“The popular perception is that only executives in IT (information technology) and ITeS (information technology enabled services) are the ones getting fat salaries,” said E. Balaji, chief operating officer of Ma Foi Management Consultants Ltd, a human resource firm based in Chennai. “Old economy sectors like cement have also started paying more for their executives,” he added.
A majority of the top CEOs in the IT and ITeS industry are paid between Rs3 crore and Rs5 crore. In sectors such as telecom, banking and insurance, CEO salaries range between Rs1 crore and Rs8 crore, with a concentration in the Rs3-6 crore band, said Balaji.
Madras Cements, whose managing director took home four times more remuneration in 2006-07 than in 2005-06, saw its net profit increase by 290% to Rs308 crore in the same period. However, the value of the firm, based on the price of shares, increased only by 26% in 2006-07. Madras Cements declined to comment on the issue. The company did not respond to a questionnaire sent through email and fax.
Employee costs in the cement industry have grown by 35% in the last fiscal, contributing to 4-5% of net sales of companies. However, with cement prices increasing and growing demand from the construction industry, sales (revenues) increased by 50%. As a result, the proportion of employee costs to net sales has fallen by between 0.25% and 0.5% during the last financial year, said Sankhe.
Hero Honda’s net profit declined by 12% due to increased competition and flat sales in the two-wheeler market in 2006-07. While the company’s market capitaliztion eroded by nearly one-fourth in the same period, the combined compensation paid to three directors went up by nearly 25%. Some independent directors of Hero Honda declined to comment on the issue of remuneration of the three directors.
According to the Companies Act, which regulates operations of firms in the country, a company cannot pay more than 5% of its net profit to any single director. Also, if there is one director who is earning 5% of the net profit, the total payment to all directors cannot exceed one-tenth of the net profit of the company.
Profit as defined for this purpose by the Companies Act (Section 349) is different from that reported by the company in its profit-and-loss statem-ent. This profit is calculated by excluding non-operating profit. For example, if a firm has sold an asset or part of its business for a profit, this amount should not be included. However, the calculation also adds back items such as directors’ remuneration, bonuses paid to employees, interest on debentures, and depreciation.
Apart from Rajha, executives at other cement companies are also faring well. Managing director of Ultratech Cement LtdS. Mishra who took charge only in October 2006, took home a total remuneration of Rs3.36 crore.
Grasim Industries Ltd, which has a cement production capacity of 13.12 million tonnes a year, paid its whole-time directors Rs4.46 crore in 2006-07. And Yadupathi Singhania, managing director of JK Cement Ltd, was paid Rs2.2 crore in 2006-07.
There are other cement firms where the pay of executives and directors has not changed significantly in the year ended March compared with 2005-06. For example, Dalmia Cement (Bharat) Ltd paid Rs74 lakh to its managing director, although with a profit of Rs229 crore it could have paid a higher amount. And N. Srinivasan, managing director of India Cements Ltd, South India’s largest cement manufacturer, received a remuneration of Rs78 lakh.