House panel again seeks caps on CEOs’ salaries

The parliamentary standing committee on finance has come out strongly in favour of capping the salaries of chief executive officers, recommending among other things that the government make it mandatory for the boards of companies to have a committee specifically tasked with determining the salaries of key managerial personnel.

The seemingly obscene salaries (by Indian standards) drawn by many chief executives has long been under scrutiny. The debate gathered pace after the global financial crisis of 2008, when it became a hot issue the world over.

''The committee is of the view that an overall outer ceiling on managerial remuneration may be prescribed,'' said the committee, which last week presented its report on the companies bill 2009 in the Lok Sabha.

The panel, headed by senior BJP leader Yashwant Sinha, has said that the ministry may evolve a rational formula for this purpose. Sinha confirmed that the panel's recommendation for a committee to fix remuneration was influenced by "obscenely high" salaries that celebrity CEOs insisted on drawing even during the downturn, and the raging perception that economic reforms and globalisation had widened the income gap.

''...The remuneration payable within this overall ceiling may be decided by the remuneration committee of board or shareholders as already proposed in the bill,'' it added. The debate on this issue was first initiated by Prime Minister Manmohan Singh himself soon after the financial crisis had hit the country.

Currently, under to section 198 of the Companies Act 1956, total remuneration paid to managerial personnel cannot be more than 11 per cent of net profit, while an individual manager's compensation is capped at 5 per cent of net profit. If a company wishes to break the ceiling, it requires a go ahead from the corporate affairs ministry.