The salaries of CEOs have skyrocketed over the past 20 years, rising at a faster pace than average wages, managerial pay, or corporate earnings. This is mainly due to compensation benchmarking. A standard practice in many industries, benchmarking occurs when compensation committees use peer executives at rival firms to establish a “fair” market wage. The problem is that each year, some CEOs leapfrog others by raking in huge bonuses or raises that are unrelated to their company’s performance, often thanks to poor corporate governance or oversight. These inflated salaries are then used by other companies to set their compensation levels; over time, the snowball effect makes CEOs’ salaries swell dramatically.
The compensation survey conducted by Standard & Poor’s (1992 to 2006) revealed that there were haphazard sharp increases in CEO salaries. When the pay of Chief Executives were compared with the compensation received by the salaried Directors on different Boards. An attempt at examination as to how CEO pay was determined by analyzing consultant and compensation committee records. Leapfrogging accounted for about half of the overall increase in CEO salaries in that time period, according to the survey. The mean CEO salary plus bonus, adjusted for inflation, grew by 58 percent from 1993 to 2005, and the mean total compensation, which included stock and stock options, increased by 116 percent. Meanwhile, mean annual compensation in India overall rose by only 20 percent.
As per SIBI Guidelines, there is a mandate that the firms shall disclose the salaries drawn by the top-CEOs, how much bonus, percentage of profit was paid to them, what were their perks. Also salaries, commissions drawn by paid Directors also need to be disclosed. Some firms give Stock options to the Staff, wherein a good chunk in blue chip companies land in favour of the top executives like CEO, Mg Director, Dy Mg Director, Working Director etc. One CEO of a firm based in Chennai draws Rs 42 Cr as compensation per annum. His wife, who is the Dy MD, is also drawing an equivalent sum. There are many CEOs in India who draw an average salary and compensation of Rs 1 Cr and above.
The salaries of CEOs fixed during the last twenty years or so, based on standard surveys conducted by international reputed Analysts are that competition benchmarking is the bottomline for fixing the salaries of their own CEOs. Otherwise, there will be migration or desertion. But the comparison of salaries of competitions is often inflated, which artificially drive up competition.
The same benchmarking with the 6th pay commission recommendations to the bureaucrats has necessitated an enlargement in the salary and allowances of members of Parliament. However, Cabinet on the basis of the recommendation by parliamentary affairs ministry proposed to increase the salary from Rs 16,000 to Rs 50,000 against Rs 80,000 as recommended by the Parliamentary panel. Today, a Secretary to Government gets a pay of Rs 80,000 per month after the revision of their salaries after introduction of 6th Pay Commission. In addition an MP gets a daily allowance of Rs 2,000 per day, constituency allowance of Rs 45,000 and office expense of Rs 45,000 per month. The car allowance has been increased to Rs 4 lakh. Spouses are also eligible for free travel by flight. The increase is from retrospective effect (arrears from May 2009). In addition each MP is provided with Rs 2 Cr which can be spent by him for special works in his constituency. These are times when inflation is in the two digits, there is widespread disquiet because of non availability of jobs, or basic income, huge defence outlay because of fearsome neighbours, terrorist masterminds who want to see the country destroyed, agriculture and industry’s growth is slow paced. Our egalitarian society which promises every citizen the fundamental right to freedom of work, when there are none opportunities should glaringly reflect in the eyes of our people who have been capitulated to Parliament to work towards the welfare of the nation.
The free economy regime will see demand for more and more wealth, and creation of more wealth will lead to more spending resulted in runaway inflation.
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