[MaxTorque]

Very interesting topic.

I think we are discussing the CXO salary of listed companies only. Obviously, the salary details of MNCs are not available in the public domain and they are not bound to make it public.
Also, it would be worth discussing two-wheelers, passenger cars and heavy vehicle industry separately.

Two factors (there are many) that may be influencing the CXO level salaries are these companies are competing against MNCs to hire and keep the CXO level talent so they have to be paid well to keep the talent
and the second most of this high paying CXOs are part of the board of directors who actually decides the top management salaries.

I have interacted with three CEOs listed in this thread, after an interaction with them we will realize why they are holding that position :-)

Having worked in Indian automobile industry, few observations
1. Two-wheeler Industry is paying much higher salaries compared their four-wheeler counterparts.
2. MNC Players are paying much better compared to Indian counterparts. One reason is many MNC players are operating on CKD models or they have a better level of automation.
3. The average salaries declared by surveys are not giving a true picture (like many other surveys). Before moving overseas I worked in Indian automobile industry for 16 years. My and my colleagues' salary was nowhere near the salaries mentioned in those surveys. Whenever we search for different jobs, we used to get the response from recruiters saying "Oh sorry, you are already getting an industry average salary".
4. The salary disparity between CXO level employee and other employees are much less in Australia. Rather people are reluctant to take up additional responsibilities because those responsibilities won't come with proportional salary hikes. Even if they get, the government will eat up a major portion of that hike in the form of tax.

[ashokrajagopal]

Originally Posted by AMG Power

If all of this is decided by the maker of law of the land, this entire thread is redundant.

The Companies Act ONLY prescribes a maximum limit which is very high and all the quoted salaries are well within those limits. There are restrictions only when there are inadequate profits.

The maker of the law of the land and this discussion are chalk and cheese.


Factors such as a level playing field in business and other irrelevant trivia were probably good for doing business in cold war Russia.

This thread starts with statements from US presidential election finalists about the wage disparity. In the last few years, the only topic that overbears the wage disparity issue in the free world elections is ethnicity and immigration. Including the recent Italian and Mexican elections. Ironically, the only places where this does not seem to matter is Russian and Chinese elections.

Level playing business markets with environment and other standards has been the theme of World economic forum and Climate accord in recent years. If there is another economic view on this, we may discuss in the Understanding economics thread because it may go tangential to the discussion here.

Taj Mumbai does not charge its patrons anywhere close to the highest amount in India. They probably did a long long time ago. There are several hotels that charge a lot more.

I have no contention on this. They are amongst the most expensive(judging by their prices available online) and its unfortunate if they are not paying decent wages to their employees. Tier 2 pubs in Bangalore pay 20k to waiters.

[NetfreakBombay]

Originally Posted by Samurai

Let's leave Steve Jobs out of this discussion since he started company. There wouldn't be an Apple Inc without him. TCS on the other hand, was already the #1 software company in Asia when Chandra joined it in the late 80s. He is a professional CEO, so let's focus on him. How much credit should be given to professional CEOs?

This comparison is quit apt. It also demonstrates situations where CEOs can make a difference.



For TCS (and similar companies) CEO does not play a big role. Delivery / Sales and HR are well oiled machines; CEO needs to make sure it remains that way.

Originally Posted by Samurai

What happens in most companies is that the employee X might get a small bump to 120K, while the CEO gets pushed to 2 million.

This is where CEOs can make a huge difference. That is by creating and maintaining such culture (3M is one example, AWS is another):

1. Ensure that multiple such products are generated
2. Promote risk culture (E.g.: ensure that these product ideas are encouraged, failures are celebrated, bump of 20k actually reaches teams responsible for product ideas)
3. Hire A teams

Such CEOs should be well compensated. In my niche (Software Products), this seems to be the case.

[nakul0888]

Originally Posted by Jeroen

Well, I don’t think that is strictly true. Although it does depend on how you define rich and prosperous and a free economy. It’s again is the richness and prosperous evenly spread across the country? Or are there still huge difference.

Look at countries such as Sweden, Germany, The Netherlands. By and large these are considered hugely prosperous countries, but are also for instance by Americans considered to be socialistic states. Yes, taxes are high, but there are solid unemployment benefits, state pension, state health insurance, state schooling, free speech, All available to all! It is considered a free economy and by and large a very equal society for men and women alike, irrespective of your background, religion, political and or sexual orientation.

Many people would consider the USA a rich and maybe even a prosperous country. And yes, depends on how you count. But there is still real poverty in the USA at a scale you would find hard to believe. There are few if any social safety nets. Lots and lots of un-equality in every imaginable way, be it race or otherwise.

Jeroen

Just one problem with comparing Scandinavia to India. Actually several problems in doing that.

India has a massive population of more than billion people. I think the population of my city kochi alone exceeds that of some of countries you be listed. What works for 5 million people doesn’t work for billion people.

Then there is the fact that the Scandinavian countries have enjoyed unfettered market economies from late 1800s which created a lot of wealth then only from 1950s or 1960s they started the welfare programs. They ve got redistribution programs because they ve wealth to redistribute. And many of these countries may have high taxes but they have low regulations and govt intervention in the private sector. Fun fact- all these Scandinavian countries rank way higher on the economic freedom index than the USA. So I would say these countries enjoy a high standard of living despite their social programs not because of it.
When it comes to India , our country hasn’t had a even a decade of a market economy. Our gdp per capita is only 1800 usd per person. In Scandinavia it’s mid 40,000 usd per person. We don’t have wealth to redistribute and make safety nets, the ones that work even slightly anyway. You can’t redistribute something that isn’t there now can you?

This is why I am a rabid foaming in the mouth free markets guy 😂. Let us actually get somewhere with our economy then we will talk about redistribution this and regulating that.

No idea how long this post is gonna stay up . Seems we re veering off topic

[Jeroen]

Originally Posted by nakul0888

Just one problem with comparing Scandinavia to India.

This is why I am a rabid foaming in the mouth free markets guy 😂. Let us actually get somewhere with our economy then we will talk about redistribution this and regulating that.

I was not comparing Scandinavia to India. Also, there are quite a number of countries outside of Scandinavia to which the same applies. although I do believe in free markets, I also believe in governement playing in important role in establishing and maintaining that free market. Some confuse a free market with anything goes. That is certainly not true. Look at Western Europe and Scandinavia. Very much a free market but their are an awfull lot of rules and regulations. And typically these countries regulate at least with the idea of a greater good for society at large. E.g. look at all the legislation on emissions.

These excessive CXO salaries are for me a sign of a freemarket running rampant. What does it bring to society at large?

Look at some African countries that have been doing well in the last couple of decades. You will see lots of aspects of free markets implemented, but also the other factors I mentioned. The idea that you need to be rich before you can re-distribute simply doesnt hold water.

On India, yes still lots of room to improve. But India also, had made impressive strides during the last couple of decades in terms of how its economy and society has been transformed.

Jeroen

[am1m]

Originally Posted by Jeroen

Some confuse a free market with anything goes.

This is exactly what most of us urban Indians do. Having seen the negative effects of the 'license-raj', we've acquired a deep-rooted fear of anything to do with government control and a blind faith in the 'private sector'.

We also tend to confuse increased consumer choice with real economic progress and prosperity.

While we certainly need to generate wealth in order to do anything with it, even re-distribute, what seems to be happening is precisely this 'anything goes' mentality in the name of development.

Environmental concerns and social justice go out the window, and we get crooks masquerading as entrepreneurs and visionaries, and industrialists who advocate 'free markets' on twitter while furiously lobbying the government for the exact same protection from better international competition that they enjoyed before liberalization.

[Jeroen]

Originally Posted by am1m

a blind faith in the 'private sector'.

We also tend to confuse increased consumer choice with real economic progress and prosperity.

While we certainly need to generate wealth in order to do anything with it, even re-distribute, what seems to be happening is precisely this 'anything goes' mentality in the name of development.

Environmental concerns and social justice go out the window,.

Thanks, well put. This is exactly what I am eluding too. The CEO salaries are just a direct consequence of this free for all mentality. For me it is the embodiement of how things get out of control for the good of a few (CXO and shareholders) but at the expensive of society at large.

On the upside: there is more and more 'social pressure' brought to be bear against these sort of practices. Certainly in western Europe. And it's even coming from shareholders sometimes these days.

What with the Trump administation I fear things are heading the exact opposite way. The extent to how American will actually be affected by American first is a good example on how a small percentage of the population will be better off, but most likely at the expense of a much larger part of the already disadvantaged population.

Although, the big American multinationals and their CXOs are beginning to understand you will need to adapt to maintain your relevance in many markets outside the USA.

Jeroen

[timuseravan]

Originally Posted by am1m

This is exactly what most of us urban Indians do. Having seen the negative effects of the 'license-raj', we've acquired a deep-rooted fear of anything to do with government control and a blind faith in the 'private sector'.

That is because private sector has delivered and "government control" has almost always been a disaster of huge proportions. As a matter of fact, any place where Govt actually works is given as an example of outlier!

Originally Posted by am1m

We also tend to confuse increased consumer choice with real economic progress and prosperity.

No we do not - they are directly related. Increased consumer choice is purely due to increased affordability which is due to economic progress and prosperity.

Anyway coming back on topic, personally I do feel that CXOs are overpaid in lot of cases. And I would agree that workers should be paid more.

But I believe much much more in Free markets. The past 200 years for developed countries, past 40 years of China and past 30 years for India have shown the remarkable ability of free markets and capitalism to lift staggering amount of people out of poverty. For an example in other direction look at Venezuela.
What the CEO is paid and what a worker is paid is purely the concern of the shareholders of that company.

[am1m]

This is another problem that prevents any middle-ground. Any discussion on economics reduces to a 'capitalism versus socialism' debate. It becomes a kind of 'all or nothing' debate/approach. No one is saying that free markets don't work or that excessive government control is good. We've seen the proof of both demonstrated; for people of my generation and older, we're literally living through the difference.

The point is that a policy of unbridled capitalism and crony capitalism, which as people have pointed out economic disparity in the form of staggering wage imbalance is an indicator of, is going to turn out as bad as, if not worse than, license-raj was.

[Samurai]

Originally Posted by am1m

This is another problem that prevents any middle-ground. Any discussion on economics reduces to a 'capitalism versus socialism' debate. It becomes a kind of 'all or nothing' debate/approach.

Exactly, there isn't a single pure capitalist or pure socialist country in the world. Yet, when it comes up for discussion, people some how assume there are only two pure kind of economic system.

I had discussed this before.

[Detritus]

Equality is a false god. Absolute income is what matters.
As an example, take a billionaire (say, Mukesh Ambani), a regular middle class salaried guy and a slum dweller.
The income disparity between the first two is obviously much greater than that between the last two, but when it comes to quality of life, the slum dweller's is abysmal compared to the middle class guy, because in absolute terms he barely earns enough to cover basic needs.

To take the auto industry CEO vs worker disparity here, it is not as though the workers are on starvation wages compared to the CEO. They earn proportional to market demand for their skills.

And with increase in technology and automation, labor will continue to get substituted by capital. American car factories today produce more cars with fewer workers than they used to in the 60s when Detroit was at its peak.
The fewer auto industry workers that remain will have to be skilled at operating the advanced machinery, they are not just tightening bolts on an assembly line anymore, that kind of work is done by robots now.

The whole talk of inequality boils down to wanting equality of outcome, and is a form of zero sum thinking. We saw how well that worked out in socialist/communist regimes, everyone ends up equally poor.
With the media leaning left any which way worldwide, and India in particular still with its socialist hangover, no wonder such thinking persists.

[Hayek]

Originally Posted by NetfreakBombay

For TCS (and similar companies) CEO does not play a big role. Delivery / Sales and HR are well oiled machines; CEO needs to make sure it remains that way

If that was the case, TCS, Infosys and Wipro should have continued to have similar returns. That has clearly not been the case. The well oiled Infy machine (which everyone thought had better talent than TCS) lost out to TCS. Leadership matters - far more than most people realise. In the auto industry, look at what Marchionne and Ghosn achieved compared to those who led Fiat / Chrysler or Nissan / Renault before them.

Originally Posted by Jeroen

I was not comparing Scandinavia to India. Although I do believe in free markets, I also believe in governement playing in important role in establishing and maintaining that free market. Some confuse a free market with anything goes. That is certainly not true. Look at Western Europe and Scandinavia. Very much a free market but their are an awfull lot of rules and regulations.

I don’t think anyone is arguing government and rule of law is not important. The free market cannot exist without laws, an effective justice system that ensures sanctity of contracts, and protects private property. And I also agree that maintaining such a system in a country with high social solidarity (which increases the propensity to favour low inequality) is far easier than in a country where its every man for himself. But the experience, particularly of those of us who have seen India in the 1980s, makes us highly sceptical about the value of government regulation, and government inspired steps to reduce inequality. When I was growing up, the law limited CEO compensation in India, and that meant that everyone down the line earned even less. The cap was as low as ₹600,000 per annum per tax (and the marginal tax rate then was 55%) even in 1994 (then about USD 20 k per annum). Some companies got around the cap through cash payments to valued employees, others gave fancy perks but limited cash comp. Net result, a number of my dad’s colleagues who retired a few years before him (in the early 1990s) had virtually no savings, and are dependent on their children for healthcare post retirement. You may argue that was one extreme. But regulators always seek to expand their power. And we have seen the consequences of this evil power grab. Much rather live with high inequality and a few over paid folks than with everyone being equal but poor (except the dishonest and powerful)

[NetfreakBombay]

Originally Posted by Hayek

The well oiled Infy machine (which everyone thought had better talent than TCS) lost out to TCS.

That is primarily due to promoters meddling in running of Infosys. On the ground, there is no difference in quality delivered by these companies.



CEO compensation in both companies is comparable. Infosys probably had to may more for someone to clean up the mess.

Originally Posted by Hayek

Leadership matters - far more than most people realise. In the auto industry, look at what Marchionne and Ghosn achieved compared to those who led Fiat / Chrysler or Nissan / Renault before them.

Auto Industry is not a well-oiled machine, it is going through significant changes. This is the situation where CEO can make a huge difference.

[Samurai]

Originally Posted by Hayek

That has clearly not been the case. The well oiled Infy machine (which everyone thought had better talent than TCS) lost out to TCS.

Did Infy ever beat TCS in revenue? Even when everyone was hailing Infy as the greatest thing that ever happen to Indian IT industry, I recall unlisted TCS was quietly ahead of Infy. In my years in TCS in the 90s, I remember feeling irritated at all the press Infy was getting while playing second fiddle to unsung TCS.

Originally Posted by Hayek

Leadership matters - far more than most people realise. In the auto industry, look at what Marchionne and Ghosn achieved compared to those who led Fiat / Chrysler or Nissan / Renault before them.

I didn't see anybody claiming that leadership doesn't matter. Leadership is extremely important. We are differing on how much to pay the leaders. Who is the most important leader in India? The prime minister, and he gets paid ₹20L/pa according to wiki. Let's look at top bureaucrats (IAS), who literally run the country. Unlike politicians, the IAS officers are the cream of the cream, chosen via toughest selection procedures. They make anywhere between ₹20L-₹40L/pa depending on their seniority. Mostly, the power and responsibilities of an IAS officer is much higher than that of a typical CEO.

Pay leaders well, but don't pay them so obscenely that the employees they are leading feel cheated. We should not turn CXOs into nobility and average employees into serfs, by injecting so much inequity.

[V.Narayan]

Originally Posted by Samurai

I didn't see anybody claiming that leadership doesn't matter.

Samurai, most respectfully quite a few posts on this thread implicitly and quite clearly mean that which is why Hayek brought it up. The thread rapidly became a groaning session against those who earn more and those who run or grow businesses by those who dont.

Let's look at top bureaucrats (IAS), who literally run the country. Unlike politicians, the IAS officers are the cream of the cream, chosen via toughest selection procedures. They make anywhere between ₹20L-₹40L/pa depending on their seniority. Mostly, the power and responsibilities of an IAS officer is much higher than that of a typical CEO.

The thread is about comparing the wages of CEOs with workers which in my humble view is absolutely the wrongest type of comparison to get into - the limited thinking of journalists who often have never created a job in the economy. If a CEO is overpaid relative to his performance address the issue for that particular case. If the IAS are under paid, which they definitely are, address that issue. Don't run down CEOs (who by the way contribute to creating jobs) just because the IAS have a power vs paisa mis-match. I have spent a lifetime dealing with them and seen them in all their colours. A few I have the deepest admiration for. Many were good at being sahibs and only managing their own world. If the responsibility of an IAS is more then pay him two million $ a year like happens in Singapore. Running down CEOs because IAS are supposed to shoulder more responsibility sounds like a persecution complex.

Pay leaders well, but don't pay them so obscenely that the employees they are leading feel cheated. We should not turn CXOs into nobility and average employees into serfs, by injecting so much inequity.

If a Munjal at Rs 75 crores doesn't deserve it then go at him in his AGM. But 25 CEOs in India drawing disturbingly high amounts does not make the remainder 975 black sheep nor does it make their employees serfs. I like your point about nobility. It is a real risk with iconic CEOs and family CEOs. If a CEO is over paid the fault lies with a weak Board.