Home >Opinion >Who cares about pay ratio numbers in India

The first set of numbers related to the Securities and Exchange Board of India (Sebi)-mandated disclosures about the ratio of CEO pay to median salary are out in the annual reports of Indian companies. While the numbers are no surprise, it is curious that the ruling which generated so much heat in the US has passed almost unnoticed in India. In the US, the Securities and Exchange Commission (SEC) received more than 287,400 comment letters on the proposal. By contrast, in India, even after the first set of companies have started publishing their numbers, few if any have bothered to comment on the issue.

In the US, the opposition to the ruling came from predictable quarters. Apologists for companies made the pertinent observation that had CEOs not been so generously compensated, it isn’t as if the rank-and-file workers would be doing much better. Data put out by the American Enterprise Institute shows that CEOs of all S&P 500 Index companies together received $6.75 billion in compensation last year. Even if that amount was redistributed to workers in these companies, each of them would receive a paltry $69 per year.

Proponents of free markets have also argued that while on paper the gap looks unjustly wide, it misses a vital point. CEO pay is also a reflection of where the buck stops. In the US, CEO pay started declining after the financial crisis of 2008 even while other employees have seen their salaries rise. Indeed, if the Dodd-Frank directive on this issue was aimed at the worst culprits of the financial crash, the banks, it worked quite effectively. According to a Wall Street Journal review of bank regulatory filings, CEOs last year on average made 124 times the average worker at the banks, down significantly from 273 times in 2006.

A similar comparison isn’t available in India since there are few numbers for earlier years. The few voices that were raised when Sebi first floated the idea that firms need to put out the pay disparity numbers pointed out that the ratio also cannot be the same across sectors and industries. Given the very different skill sets needed, a healthcare or an information technology services employee will earn much more than the average employee in an industry such as jute. The median salaries will also depend on how many people there are at various levels of the firm’s hierarchy. A steel mill, for instance, will have a workforce shaped like a pyramid with the bulk of workers on the shop floor while an investment banking firm, by contrast, is bound to be top heavy.

But these objections didn’t stop Sebi from going ahead and mandating these disclosures. The problem now lies with what we make of them and whether they can be of any material benefit to employees or shareholders—the two entities that have a right to these. In the absence of suitable power for shareholders to vote on executive compensation in India, no direct benefit accrues. And given the byzantine nature of compensation structures in most Indian firms, with a plethora of allowances, bonuses and other schemes confusing the overall number, the calculation of the ratio itself is suspect. In addition, contract workers abound in Indian firms where the contractor pays the deployed workers a part of what the company pays him, which obfuscates the final compensation numbers even more. India has no equivalent of the US bureau of labour statistics to validate company numbers.

In any case, not much can be read into Lupin Ltd chairman Desh Bandhu Gupta’s salary showing the highest deviance—1,168 times—from the median salary of his firm’s employees. Like Sunil Mittal or Pawan Munjal or Mukesh Ambani, Gupta is the owner and CEO of his firm, a phenomenon that has no equivalent in the US.

Curiously, the initial set of numbers also gives evidence of clear business reasoning. In the same business group, the CEO of highly profitable Tata Consultancy Services earns 400 times the average worker’s salary in the same company while CEOs of group companies Tata Motors and Tata Steel both earn less than 100 times the average salary, which reflects the stretched financials of the firms and the variable pay content.

The problem with provisions of this kind is that they can’t work in isolation. In the US, the pay ratio rule complements other rules mandated by the Dodd-Frank Act.

In India, in the absence of any meaningful way of applying the data to improve corporate governance standards or enhance shareholder involvement with the firm, the information will stay as a bit of exotica.

Are CEO salaries unfairly high? Tell us at

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout