The Counsellor- The top executives' compensation cap
In a global capitalist economy of today, the Labor market for the top leadership talent as well as that of technocrats is no more confined to local or even national boundaries
In January, the Swiss voted on whether to limit the salaries of top executives so they don’t earn more in a month than the lowest paid workers earn in a year. This move could mean big pay cuts for business leaders who are earning millions. Calls to limit the pay of top executives are not restricted to Switzerland. In India too these issues have been raised time and again. But would such a move work here? Is such an exercise warranted in India?
Swiss voters have decisively rejected this proposal to cap “fat cat” pay as they call it, in a ground-breaking referendum on the issue. The measure was opposed by 65 per cent of the voters. Executive pay has been a hotly debated topic in Switzerland in recent months, to ban “golden hellos” and “golden goodbyes”, amid popular and political outrage over revelations that Novartis planned to pay its outgoing chairman, Daniel Vasella, SFr72m ($79.4m) as part of a non-compete agreement.
This kind of move is not new. In the good old days in the socialistic era, they used to say that the ratio of the top leader’s pay to that of the lowest paid worker can’t be more that 1:8. Socialist philosophies are always opposed to the high compensation levels of the top leaders. Calls to limit the pay of top executives are not restricted to Switzerland. Anger over huge payouts is reflected time and again in many societies. French President is pushing for a cap on pay at state-owned firms of 20 times that of the lowest paid employee. Spain’s opposition Social Democrats have adopted the 1:12 ratio as part of its economic policy,
In a global capitalist economy of today, the Labor market for the top leadership talent as well as that of technocrats is no more confined to local or even national boundaries. The compensation structure for such talent therefore has to be global and not local. Any artificial barriers to the compensation levels will lead to the flight of talent, which corporations can’t afford. The argument against the cap on the top executive compensation is due to the fear that competitiveness of the corporations / country to attract and retain talent will erode. In India too, in the periods from 60s to 90s, we witnessed “brain drain” or flight of the talent to the developed countries - partly due to the lack of opportunities and also partly due to attractive compensation leading to better life style outside India.
I believe that instead of creating artificial caps on the compensation, considerable debates and deliberations must focus on how to make the top leadership compensation reasonable and fair.