Pay check

Rajiv Bhuva and Anusha Subramanian         Print Edition: Nov 14, 2010

Numbers can tell a story pretty well. In financial year 2010 Anil Ambani, Non-Executive Chairman of Reliance Capital and Reliance Communications, picked up a salary of Rs 1 lakh and Rs 3 lakh, respectively, from these two companies.

Reason for such austerity: Profits of both companies have taken a knock - Reliance Capital by almost 65 per cent, and Reliance Communications by 90 per cent.

Numbers can sometimes mislead, too. For instance, the pay packet of Kumar Mangalam Birla, Chairman of the Aditya Birla Group, shows a 13,726 per cent jump at one of the group companies he chairs, Aditya Birla Nuvo. Now before you start siding with those who advocate that CEO salaries should be capped, here's a small detail that queers the pitch a bit for the cheerleaders of caps: In financial year 2009, Birla had taken home a princely sum of Rs 1 lakh, as the group battled recessionary conditions.

A year later, he upped his salary - but although the hike runs into five figures in percentage terms, the pay he received last year was a moderate Rs 1.38 crore. And that constituted just 0.49 per cent of Aditya Birla Nuvo's net profits.

Section 198 and Section 309 of the Companies Act, 1956 mandates that total remuneration paid to all managerial personnel (managing or whole-time directors) cannot exceed 10 per cent of net profits, while an individual manager's compensation is capped at 5 per cent of net profits. Whilst most CEOs of India Inc. have done well to stay within those limits, the upswing in the economy has prompted many to opt for a hike as business prospects brighten. Data culled from the BT 500 study reveals that average annual remuneration of the top 93 CEOs of India Inc. has seen a growth of 16 per cent from Rs 5.96 crore in 2008-09 to Rs 6.92 crore in 2009-10. That is in line with the growth in post-tax profits of 17 per cent at these companies.

The CEO who took the biggest package last year was Naveen Jindal, Vice Chairman and Managing Director of Jindal Steel & Power Ltd, or JSPL. He took home almost Rs 70 crore, which was a 147 per cent jump over financial year 2009.

Curiously, Jindal chose to opt for this hike in a year in which JSPL's net profit growth slipped by just under 4 per cent. Yet, the hike is not difficult to stomach, because JSPL has shown profits of close to Rs 1,500 crore - which means that Jindal's salary is well under 5 per cent of the company's net profits.

The three names that follow Jindal on the list of highest salaries are all from one company - Hero Honda. Chairman and Managing Director Brijmohan Lall Munjal, Executive Director Pawan Kant Munjal and Joint MD Toshiaki Nakagawa, between the three of them, took home a little over Rs 90 crore. Analysts point out that if Honda does pull out of the joint venture - as has been reported - financial year 2010 could well be the last year of such chunky salaries for the two-wheeler major's top brass.

Are such fat pay cheques fanciful? Not really, says K. Pandiarajan, CEO, Ma Foi Randstad, an executive search and HR consultancy firm: "The promoters usually take fat salaries as part of their tax planning exercise. It reduces the taxes to be paid by the company."

Yet, it helps when you have promoters like Ashwin Dani and Ashwin Choksi of Asian Paints. The company registered a smart 114 per cent growth in profits last fiscal. Yet both slashed their pay packets by over 80 per cent - to Rs 31 lakh and Rs 37 lakh, respectively.

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