'Promoters must set an example'

Rahul Bajaj        Print Edition: November 15, 2009

Rahul Bajaj
Rahul Bajaj

I do not agree with those who want government to cap CEO salaries. I believe salaries of CEOs should be determined by the Board of Directors and approved by shareholders in the general body meeting.

Like everything else in life and business, I would like the emoluments of CEOs to be reasonable keeping in mind market conditions.

I do not understand what is meant by “vulgar” with respect to salaries of CEOs except that the reference is probably to salaries which may be deemed exorbitantly high. However, a company with Rs 100,000-crore market cap will have a different salary for its top management including the CEO than a company with a market cap of less than Rs 100 crore. Similarly, salaries/emoluments would depend on the person concerned and his experience and capability. I believe, however, that while the above should apply to professional CEOs, there is need for the promoter CEOs to have a voluntary restraint on their salaries/emoluments. Promoters, by definition, have other income and in any case will not leave their company to join another one. Hence, they must set an example.

To the extent government finds that CII or any other business organisation does not come out with a satisfactory voluntary code of conduct for remunerations of CEOs, I believe government could keep in the Companies Act a cap on emoluments of Promoter CEOs as a percentage of net profit of the company. Currently, for an individual CEO the figure is 5 per cent and for the Board as a whole, 11 per cent. The figure for the individual CEO, if he is a Promoter, may be fixed at 1 per cent of the profits of the company as calculated at present. However, a promoter CEO may be allowed a certain minimum emolument per annum in case of absence or inadequacy of profits in a company.

Rahul Bajaj is Chairman, Bajaj Auto Limited

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