High CEO pay vs average salary sparks debates

Mumbai: There have been heated debates over high CEO compensation versus what the average employee earns. While one section justifies higher salaries and hikes for CEOs, given the complexities at play for the one who steers the organisation, there is another group which believes that the compensation should be linked to profits.
The section that believes a CEO salary should be linked to profits is gaining traction.Recently, at Apollo Tyres, its promoters O S Kanwar and Neeraj Kanwar, agreed to take a 30% cut in their compensation for 2018-19 following a recommendation by its nominations and remuneration committee. The panel also proposed a cap on total promoter compensation at 7.5% of profit before tax. Apollo Tyres reported a mere 4% increase in consolidated net profit at Rs 146 crore in the September quarter of the current fiscal.
Vineet Nayar, founder chairman, Sampark Foundation, backs higher CEO pay with rewards to average employees as well. “Few reach the top while many don’t, thus high compensation at the top is justified and serves as an incentive for others to try harder. However, the trend of low growth in employee compensation while the CEO pay grows above 10% is disturbing. The day it becomes about ‘me’ not ‘us’ is the day the leader loses the right to lead and the organisation starts decaying,” he said.
On the other hand, L&T Group chairman A M Naik said, “In the current macro environment, there is constant change in market conditions and competitive landscape — commonly referred to as VUCA environment (volatility, uncertainty, complexity, and ambiguity). The new-age CEO should have the ability to cope with these uncertain conditions. Also, there is a lot of churn in CEO careers in large corporations. Therefore, companies offer higher remuneration to rope in CEOs with the potential to cope with and succeed in an uncertain/volatile environment.”
Sampark Foundation’s Nayar said high-performance organisations share the wealth with those who create it by putting employees right at the centre of their growth strategy. A number of CEOs spend time and money on their personal social responsibility to create the requisite multiplier effect in society. Naik, for instance, has committed 75% of his savings from compensation towards social work & charitable activities through the Naik Charitable Trust, Nirali Memorial Medical Trust and Kharel Education Society. He plays a major role in expanding the outreach and impact of L&T’s various CSR activities under L&T CSR and L&T Public Charitable Trust. Apart from mentoring the next generation of leaders at L&T, Naik is also the chairman of L&T’s Employee Foundation which is also involved in various CSR activities.
This study does not take into account stock options, which would vary and be higher for global CEOs. The Rs 10,388-crore (around $1.6-billion) Apollo Tyres’ vice-chairman Neeraj Kanwar, for instance, earned a compensation of $6.8 million in 2017-18 (Rs 44.6 crore), which is higher when compared to global peer Michelin’s CEO Jean-Dominique Senard’s package. Senard received a gross annual fixed compensation of $1.25 million (1.1 million euros), which has remained unchanged from 2014, and a variable component of a little less than $2 million, taking the total to around $3 million. Michelin is a $22-billion organisation.