Opinion
Enormous gaps in corporate remuneration must pass two key tests
Summary
- The supply of leadership talent falling short of demand has taken top-level pay packages to new heights in India Inc, going by data from Nifty 500 companies. Even in a free-market setting, though, Rawlsian constraints ought to apply.
Even as growing inequality confronts India as a challenge, remuneration trends among large Indian companies are exacerbating worries. While the top leaders of Nifty 500 firms earn staggering sums, as a Mint study finds, what they are paid as a multiple of the median pay of their employees has reached eye-popping levels too.
It exemplifies what many are worried about: India’s lopsided economic emergence. But just how wide is the gap? As reported by ‘Plain Facts,’ the median executive-director-level pay of the country’s 500 biggest listed firms was ₹5.7 crore in 2023-24, up 8.6% from the previous year and 50% over what it was in 2018-19.
Poonawalla Fincorp’s managing director Abhay Bhutada tops the earnings list with ₹241 crore in compensation last fiscal year.
Also read: Data check: Why C-suite salaries jumped in FY24—and did staff pay keep pace?
Hero MotoCorp’s chairperson and executive director Pawan Munjal is next with ₹109 crore, while Crompton Greaves’s executive vice-chair Shantanu Khosla at third place was paid ₹99 crore, Tech Mahindra’s CEO and managing director C.P. Gurnani received ₹92 crore and Sun TV’s executive chair Kalanithi Maran, placed fifth, got ₹88 crore.
The top five make up just 1% of the sample, but double-digit packages figure lower down the order too.
To be sure, it is for a company’s shareholders to determine what its key personnel are paid. If the person at the helm brings a blend of skills, talent and strategic focus that boosts the business and enables it to meet aggressive goals, then the value being generated may well be found to justify large rewards.
Much of what top leaders are paid is variable pay, with financial award schemes designed to align their interest directly with the company’s, an added incentive to give the job their very best. Moreover, there are market forces to take into account.
Given the complexity of running a large enterprise, demand for those seen to have what it takes often exceeds supply. As CEO head-hunters affirm, the role’s criticality means hiring risk must be kept low, so track records matter, reducing the consideration set.
If hires from abroad are part of it, then offers can go sky-high. But what about others on the company’s payroll? A look at what executive heads earn as a ratio of the median employee’s pay is startling. Take the top of this order.
At 2,899, this ratio is the highest in 2023-24 among the Nifty 500 for Signature Global, whose chairperson and executive director Pradeep Kumar Aggarwal got that many times the salary level which splits its staff into upper and lower halves.
Also read: HCL Tech’s C Vijayakumar is the highest-paid Indian IT CEO. Check his salary package here
At 1,383 times, Tech Mahindra’s Gurnani is in second place, with the three-digit ratios of Uno Minda’s Nirmal K. Minda, JSW Steel’s Sajjan Jindal and HCL Technologies’ C. Vijayakumar making up the next three ranks on this count.
Disparities could be bad for business. They could hurt the morale of staffers who feel poorly rewarded and thus hit productivity. This effect may be worse if the link between pay and performance at the top is unclear, as is sometimes the case.
Also, amid signs of wage stagnancy at lower levels, especially in the context of our profit- rather than wage-led recovery from the pandemic, huge pay ratios make for bad optics. Even in a market setting, Rawlsian conditions for what may justify such inequality ought to apply.
First, while some positions might qualify for exceptional pay, the chance to occupy that post should be open to everyone. Second, the role that such a leader plays must be for the benefit of all. Without these two tests being met, it would be unfair.
