When I talk of executive pay it is in the sense of how it is used in US. It is about salary received by the Board Members, CEO and other senior most executives of the organization. It appears often in news that shareholders are questioning the enormous pay packets to C level executives and not being able to see a justifiable relationship between the compensation received and the performance of the company.
This escalation in executive pay can lead to myopic decisions that focus more on here and now and leave the long term sustainability of the organizations in question. While this may not be the norm it is surely a possibility and there are several cases where pay received and performance are questioned.
As per a Forbes Article CEO Median pay which remained at about 1 Million Dollars from the 30's to the 80's (5 decades) shot up about 9 times by the first decade of this century (all the decades adjusted for today's dollars to be comparable). This increasing trend has caught the eagle eye of policy makers in India too...
If you read Section 197 of the recently approved Companies Act 2013 (Government of India) you will find an interesting point. (quoted below) related to executive level pay.
"Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed."
This is an important change and it is interesting that even the SEC (US) actually has incorporated a similar provision recently. So surprising that US is following India in the thinking along these lines.
When companies actually start reporting this out it would become another important metric to compare across companies in a given industry. This would put pressure on decision makers (compensation committees) to find a acceptable level that does not remain outlier in the tables that would be scrutinized with a magnifying glass by analysts and other well wishers (sic !) of the company.
Other interesting areas (from people / HR perspective) which the Companies Act 2013 also addresses are gender equality in board composition, making CSR spending mandatory (a pursuit so far) and allowing for class action suits to be filed. More on these in a later post.
This escalation in executive pay can lead to myopic decisions that focus more on here and now and leave the long term sustainability of the organizations in question. While this may not be the norm it is surely a possibility and there are several cases where pay received and performance are questioned.
As per a Forbes Article CEO Median pay which remained at about 1 Million Dollars from the 30's to the 80's (5 decades) shot up about 9 times by the first decade of this century (all the decades adjusted for today's dollars to be comparable). This increasing trend has caught the eagle eye of policy makers in India too...
If you read Section 197 of the recently approved Companies Act 2013 (Government of India) you will find an interesting point. (quoted below) related to executive level pay.
"Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed."
This is an important change and it is interesting that even the SEC (US) actually has incorporated a similar provision recently. So surprising that US is following India in the thinking along these lines.
When companies actually start reporting this out it would become another important metric to compare across companies in a given industry. This would put pressure on decision makers (compensation committees) to find a acceptable level that does not remain outlier in the tables that would be scrutinized with a magnifying glass by analysts and other well wishers (sic !) of the company.
Other interesting areas (from people / HR perspective) which the Companies Act 2013 also addresses are gender equality in board composition, making CSR spending mandatory (a pursuit so far) and allowing for class action suits to be filed. More on these in a later post.
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