Wanted: a Minder to prowl on India Inc fat cats

Swiss activist Thomas Minder has shown what one determined man can do to curb the greed of the CEOs and company owners. Time for an Indian ‘minder’ to rise? Twitterati, anyone!

rohit

Rohit Bansal | March 4, 2013


Corporate fat cats: who will bell them?
Corporate fat cats: who will bell them?

On Sunday, Swiss voters voiced their anger against corporate greed, clearing a landmark plan to boost what shareholders can do to curb executive greed. Just a day before, a CEO of a Rs1,000-crore company told me about the annual Vijay Mallya party in Goa – which was more extravagant this time than ever before!

Apparently, as if to pooh-pooh his detractors, if you had an invite to the Mallya do, you didn’t just meet the folks who should have been asking him tough questions, you could even carry your own personal guests! So much for widespread defaults on loans from PSU banks!

A recent study by global human resources (HR) consulting and outsourcing firm Aon Hewitt for Business Today on executive compensation for 2011-12 shows the median Indian CEO salary was $3.5 million, or about Rs 18.5 crore, versus $7 million in the US, about $6 million in Europe and $3.5 million in Australia!

Blood-boiling narratives like these make the Switzerland Sunday worthy of our attention. Fast facts:

1. Nearly 68 percent of Swiss voters have backed what’s called the ‘Rip-Off Initiative’, brainchild of a failed herbal-toothpaste maker, Thomas Minder. From 68 percent, it is obvious that just like us, all Swiss aren’t rich!

2. The referendum came as a result of just one man’s anger against ‘fat cat’ bosses. Straight out of an old-school Amitabh Bachchan film: Minder's family provided the toothpaste for the little flight kits on Swissair; but when the airline failed, it reneged the $537,000 contract with Trybol AG, the little Minder firm from Schaffhausen. In the midst ofafinancial ruin, Swissair had the heart to pay their chief executive, Mario Corti, an advance of nearly $10 million. The inherent injustice set Minder into the mission of his life. It’s a cause that any KF employee would empathize with. Those wanting to try more of Trybol are pointed to this info.

3. "Today's (Sunday’s) vote is the result of widespread unease among the population at the exorbitant remuneration of certain company bosses," justice minister Simonetta Sommaruga was quoted as telling a news conference in Bern hours after polls closed. Swiss lawmakers will now have to draft a law giving shareholders the right to hold a binding vote on all compensation. The law will also ban "golden hellos" and "goodbyes", euphemisms for massive one-off bonuses that top guns sometimes receive when joining or leaving a company. Indian lawmakers should watch this space.

4. The measure targets all Swiss-based companies as long as their shares are publicly traded and a fine of up to six annual salaries and up to three years in prison.The European Union has recently capped banker bonuses at one year's base salary except in the case of overwhelming shareholder approval.

5. Of the top 100 Swiss companies, 49 give shareholders a consulting vote on the pay of executives. The US and Germany have introduced advisory "say on pay" votes in response to the anger over inequality and corporate excess that drove the Occupy Wall Street movement. Britain is also planning to implement rules in late 2013 that will give shareholders a binding vote on pay and "exit payments" at least every three years.

6. Minder's initiative goes further, forcing all listed companies to have binding votes on compensation for company managers and directors, and ban golden handshakes and parachutes. It would also ban bonus payments to managers if their companies are taken over, and impose severe penalties — including possible jail sentences and fines — for breaches of these new rules.

7. Unlike the Swiss, we in India don’t have provisions in our constitution that allow anyone who can canvass 1,00,000 signatures to force a vote.

But we do have plenty of equivalents of Swiss drug maker Novartis AG, Daniel Vasella, who was to receive a leaving package worth $77 million! For the record, Vasella later said he would forego the deal, but the die was cast in the mood of the Swiss public. It’sa feeling many India shareholders can connect with.Minder has pointed out that with an annual pay package of $35.6m, Vasella is today paid 30 times more than when he was appointed in 1996. Minder wants Vasella's pay cut in half and his golden parachute, worth five years' pay, to be nixed. Novartis has already been forced to say that Vasella's eventual successor will not be offered a golden parachute.

8. A lobbying group is reported to have splashed around $8 million on advertising campaign intended to kill Minder’s proposal. The argument here was that many foreign companies will flee Switzerland.

9. Greed isn’t limited to Switzerland or India. As The Economist reported in 2007, Nicolas Sarkozy cracked down on “golden parachutes” and slapped new rules on share options following an outcry over the $11.4m payoff to Noël Forgeard, former co-CEO of the European Aeronautic Defence and Space (EADS) company, the parent company of Airbus. Forgeard, mind you, was being pushed out amid a crisis at Airbus caused by the delay in the A380 super-jumbo, He was also under investigation by French regulators for having exercising share options just before Airbus's problems emerged.

10. Surveys show the gap between the fates of fat cats and ordinary Jo. A slide show here tells us how the global bosses are making 300-1,700 times the salary of their own employee. Closer home, many CEOs received over a 30 percent hike in 2011-12 though the companies they ran saw a modest profit growth of 5 to 10 percent. Jindal Steel & Power's chairman and managing director Navin Jindal reportedly gets around 25 times what the next highest-paid Jindal Steel director does. Vijay Mallya remains in a class of his own. As per the annual reports of seven listed companies of the UB group, he was paid a total amount of about Rs 1.43 crore or Rs 14.3 million (mostly in sitting fees) from various group companies. While Mallya was not paid anything at Kingfisher and another group firm UB Engineering, he got sitting fees of Rs 1,20,000 from United Spirits, Rs 1,00,000 each at United Breweries Ltd and Mangalore Chemicals and Fertilizers, Rs 34,550 at McDowell Holdings and Rs 1,40,000 at United Breweries (Holdings) Ltd. Mallya also received remuneration from two overseas subsidiaries, amounting to $1,20,000 (nearly Rs 63 lakh) and 89,600 (about Rs 76 lakh) British Pound during the year 2011-12. The case of hikes given to his CEO have been reported too.

Tail Piece: Amidst all this, the government seems to be the most prudent of them all. A secretary, in the apex scale, gets only 12 times the salary of the lowest-ranked babu. This isn’t good – as Lee Kuan Yew has argued in executive compensation.

 

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