Astronomical salaries of top executives justified?
The panel discussion on Alignment, Management and Governance of Executive Pay and Long Term Incentives was an engaging conversation on the hot-button issue of executive pay and the issues surrounding it. Both the panelists- Manoj Sharma (Vedanta Resources) and Satish Mohapatra (Siemens) are executive compensation experts in their respective organizations.
The panel discussion started off with both Manoj and Satish strongly defending seemingly astronomical salaries for top executives.
“Why make a fuss about it” Manoj asked. He explained the phenomenon by stating the key role CEOs play in an organization. They are responsible for leading the company’s general direction, providing perspective and attracting and retaining top talent. Also, things can easily “go topsy-turvy if something goes wrong” at the CEO level. Manoj also said that with Glassdoor publishing CEO reviews, and media keeping a close eye, they are also most vulnerable to the external environment.
Satish supported those views by stating that in his organization the CEO is the face of Siemens India. “Their JDs are the shortest” and they need enough “motivation every morning” for the difficult role they have to manage. On the priorities for executive pay professionals, he said that it is necessary maintain an equitable balance of fixed pay, variable pay and equity is most important. Manoj talked about the importance of designing CEO contracts that support longevity of the service.
On the role of the Human Resources department, both agreed that they need to maintain a sense of balance- fairness on one hand, and driving competitiveness on the other. They also spoke about how the non-cash component of CEO pay will gradually increase.
We got to hear the other perspective once the panel opened up for questions from the audience. An audience member spoke about how during the 2009 recession, major banks – despite having very high salaries for their CEOs saw major shortcomings on the governance front. While the CEOs got golden parachutes, the mid and junior level staff got the pink slips. For similar reasons, another audience member pointed out that this was the reason for more regulation.
The panel members agreed that without being careful on this sensitive issue, things can easily go wrong. “Anyone who has lots of power can always misuse it”, Satish said. They asked the audience that in such cases HR “should have the courage to speak up”. The response of the audience was that rarely HR gets a place at the board.
Overall, the discussion drove home the point that this issue remains as controversial as ever- with opinions to a great extent depending upon who you ask. While there is an understanding that CEOs have a crucial role to play and they need to be compensated for their efforts, there is clearly a need for greater regulation at a policy level, as articulated by a large number of people- including the President of the United States, Barrack Obama. It will be interesting to see how this issue plays out in India in the coming years, especially because the CEO pay to average pay ratio remains high at over 300:1.