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Will new rule boost already-zooming head-honcho salaries?


Salaries of top corporate executives in India are zooming. And a new government directive is likely to fuel the spike. The Ministry of Corporate Affairs
has done away with the requirement for public companies to seek government approval for salaries beyond a threshold to their managerial personnel. The ministry said the approval of the central government would no longer be required for the payment of remuneration to managerial personnel in excess of 11 per cent of the net profit of a company.

While the government decision is aimed at empowering common shareholders of a company and increasing the ease of doing business by minimising government controls, the new directive may boost top management salaries which are already rising faster than the profits and total wage bills of the companies.

In FY 2018, salaries of top executives saw a double-digit growth at 20.4%, up from 13% growth in the previous fiscal year, according to a Business Standard report. However, the combined wage bill of companies grew at the slowest pace in the last three years at 7.8 per cent, the report says. The report is based on an analysis of financial data of a common sample of 172 listed companies where the compensation of executives and board members was Rs 1 crore or more in FY 18.

In the last there years, combined compensation of top executives grew at a compounded annual growth rate (CAGR) of 18.3 per cent against 13.3 per cent CAGR in corporate earnings and 4.8 per cent CAGR in net sales and 10.1 per cent annual rise in the total salary and wages bill.

The combined net profit (adjusted for exceptional gains and losses) of the sample companies was up 17.8 per cent in FY18, against 12.2 per cent in the previous year.

“Our study shows that executive compensation is running ahead of profits and companies bring it in line with their other financial parameters,” Amit Tandon, founder and MD, Institutional Investor Advisory Services, told Business Standard.

According to the report, eight of the top 10 earners in 2018 were promoters, and the dominance of companies driven by families and promoters could be the reason behind the surge in compensations.

Source: Economic Times