In a referendum in November 2013, Swiss voters rejected a proposal that would make it illegal for companies to pay anyone more than 12 times the lowest paid employee.
Switzerland is home to multinationals such as Nestle and Roche, and many companies already have a highest to lowest multiple of 200 times or more.
But the Swiss smarted at the behaviour of former Novartis chairman, Daniel Vasella, who asked for a severance of about $78 million (₹484 crore) and wanted to keep it quiet. (He finally settled for 14 times less). Earlier, in March, the Swiss had voted by a two-thirds majority to ban bonuses and required companies to consult shareholders on executive compensation.
The 2008 financial crisis began a wave of concern about how heads of corporations seemed to think companies were their personal treasury. It gave a boost to the pay-for-performance argument that there must be a relationship between how corporate leaders are compensated and how they perform. (Richard Fuld, head of Lehman Brothers when it collapsed, was being paid $40 million (about ₹248 crore) a year.)
Itchy backs The move to cap executive pay regularly raises its head. It is not a question of jealousy. It is irksome, especially in publicly owned corporations because, in theory at least, these firms are owned by investors and most of them don’t seem to have a say in the compensation practices. If the CEO manages to pack the board with pals, there is plenty of mutual back-scratching.
The Swiss desire to limit the spread of compensation within an organisation has an even shorter life in corporate history. Ben & Jerry, when it was still an independent ice-cream maker in the US, had such a policy and gave it up because it inhibited its ability to attract top talent.
Post 2008, the US government under its Troubled Asset Relief Program managed to introduce some supervision over executive compensation, bonus and severance payments at financial institutions that received significant assistance from the Treasury.
Local scenario The Securities and Exchange Board of India, on its website, says that the board approved a proposal in mid February for “enhanced disclosure of remuneration policies”. There is no further information. Press reports suggest that SEBI “seeks to check excessive salaries paid to top executives”.
If SEBI is only looking for more transparency, that is to be welcomed. What we do not need is someone telling a company how much it can pay its executives. That is for the shareholders to decide.
SEBI can take strength from what happened at Infosys: that one must trust the management of a company to regulate its own executive salaries keeping in mind their performance. There seemed to be concern in the press at the number of senior level executives leaving Infosys.
However, CEO NR Narayana Murthy did not seem worried. “People earning huge salaries...are not bringing value to the company,” he said. They either need to be given the tools to improve or we have to bid them goodbye, he added, hinting that there was probably room for more exits.
(The author is the dean of the Jindal Global Business School, Delhi NCR)