May 25, 2007

Indian Prime Minister on Excessive Pay

When PM Dr. Manmohan Singh read out the "excessive pay" speech India Inc. at the CII forum, people were not really ready for it.

Singh told a CII conference that promoters and top executives should be restrained in pay. But what should be the extent of restraint by say a Sunil Bharti Mittal, the newly installed president of CII, whose remuneration doubled to Rs 12.6 crore in the previous year, taking him to the 5th position according to Business India magazine. Or India's top billionaire Mukesh Ambani who was the top paid executive in 2005-06.

According to a Forbes survey, with 36 billionaires, India has edged Japan to the second place, with 14 new Indians joining the list last year, a consequence of generous stock holdings and rising valuations in the technology, realty, commodity, energy and media sectors.

Top managers said they are paid for maximising shareholder value, but efforts at linking pay to incremental value created might end up increasing the risk premium, for failing to attract the right candidate.

However rising Indian pay has to be seen in the context of global competition for talent and an ability by rising Indian organizations to compete with the best in the world. When Indian companies can forge global acquisitions, they surely can afford to pay to acquire the best talent.

Surely Dr. Singh, as an economist, understands the basic law of demand and supply. There is ample proof that India lacks leaders who can take organizations global, and where there is a shortage, prices will rise.

If organizations can pay high and remain competitive, maybe Dr. Singh's government can concentrate on areas that will help India produce more and more leaders. Like revamping and changing the nature of basic, secondary and higher education. Like providing for better healthcare so that future leaders do not suffer due to malnutrition, and focusing on keeping them educated. And also focusing on growing urban centres so that expensive cities don't keep getting more and more expensive as everyone tries to get there, which lead to people demanding higher and higher salaries to move there.

However, if organizations pay high and are not able to remain competitive then maybe Dr. Singh should not be too disturbed. That will weed organizations that don't perform.