Kanika Datta: Pay=Performance

SWOT

Salary surveys these days rarely fail to surprise with their prognoses of rapid across-the-board increases in remuneration. It's the talent crunch, commentators will tell you. Narrowed down to senior management and CEO level, it is not unusual for pay and perks to run into crores""per month. As in the West, generous pay packages, transparently sanctioned by corporate boards and declared in annual reports, are considered a legitimate reward of high office and responsibility. In India, though, this shift in attitude is certainly novel and quite different from what prevailed before.

Between the seventies, and the mid-nineties, it wasn't considered quite the thing to be too overt about how well you were paid. Outside of Mumbai""which was unabashedly capitalist at heart long before the rest of India, in any case""it was considered awfully noveau riche to do so. This was also the attitude of business newspapers, whose views tended to be mildly red. I can recall many a breathless story about how such-and-such chief executive had a swimming pool in his home""an accoutrement that would be considered quite natural for even senior execs today.

Make no mistake, there were plenty of senior executives who lived reasonably luxurious lives""especially those lucky enough to be employed by the few multinationals around at the time or in the big Indian corporate houses. In Kolkata, executives who worked for sterling tea companies, for instance, were considered the Chosen Ones in that respect.

This general collective reticence was a result of the prevailing official attitude. Nationalisation was public policy and garibi hatao the avowed objective even as more than half of India lived in grinding poverty. Today, as CEO salaries soar into the stratosphere, few will remember that managing directorial salaries in those days were actually fixed by the government""at the princely sum of Rs 7,500, a ceiling that was generously raised to Rs 15,000 in the late eighties.

Most companies tried to compensate for this absurd restriction by offering their managing directors lavish perks in terms of enormous company houses, armies of servants, fleets of cars, and so on. Sometimes, the pay-stretching ruses went to ridiculous lengths. Some chief executives appointed their wives as unofficial secretaries or resorted to the then allowable tax break of declaring spare bedrooms in their company accommodation as guest rooms. This allowed managing directors and their families to live in comparative comfort over the tenure of their terms and join the ranks of the genteel noveau pauvre when they retired.

But this was the situation if managing directors cared to be law-abiding. The trouble was that even these meagre earnings and perks (including the 1% share of profit) were taxed at punitive rates""in Morarji Desai's time tax rates actually touched the high nineties. As Chidambaram said in a speech during his first stint as finance minister in 1997, people would have had to be saints to pay those rates. Understandably, few chose to be canonised thus. It is telling that the government later introduced the "rashtriya samman" award for high earners who conscientiously paid their taxes""reflecting an understanding perhaps of the amoral nature of India's tax-paying public.

Pre-nineties, one of the ways of avoiding the salary ceiling was to change the designation of the chief executive. The designation "managing director" is defined under company law as someone who has what lawyers describe as "substantial powers of management". Put another way, that meant that the managing director, as primus inter pares among board directors, owned legal and primary responsibility for the management of the company.

The flip side, of course, was that a managing director was also relatively independent of the whims of owners and proprietors and could not be easily removed if they fell out. One good example of this was the famous takeover battle in the eighties between S P Acharya, managing director of Shaw Wallace, and M R Chhabria, the new arriviste owner of the company. The issue of who would run the company was finally decided after a dramatic volte face by the financial institution at an extraordinary general meeting. Acharya retired thereafter to Chennai and Chhabria and his younger brother took charge.

Many chief executives, however, had themselves designated president. Not being defined under the Companies Act, this allowed companies to pay them more realistic salaries. But it also left these newly anointed presidents powerless against proprietor whims to pack their boards with friends and relatives and impose strategies that might be patently unsuitable. Though there are still legal (and more complex) restrictions on managerial remuneration in India, the terms are now far more liberal, if somewhat archaic. In any case in today's competitive environment, a designation only matters as long as the man or woman at the top is able to deliver results. And like a good footballer, their pay and perks last only as long as they have a marketable worth.

The views here are personal