Calcutta, May 29: Brothers Ambani — Mukesh and Anil — are putting a freeze on their take-home pay.
The two brothers — the country’s highest-paid corporate chieftains with an annual compensation package that works out to over Rs 7 crore each — are seeking re-appointment as chairman and vice-chairman, respectively, of Reliance Industries for five years without any change in their fixed pay.
The two receive a salary of Rs 5 lakh each and perquisites of Rs 4 lakh each every month. The rest comes in the form of commissions, which is a percentage of profits.
Besides being chairman and vice-chairman respectively, Mukesh and Anil are managing directors of Reliance — the country’s largest private sector company that earned over Rs 66,000 crore in revenues in 2002-03.
The salary and perquisites of the Ambani brothers have not changed since 1999-2000, but their income has increased with the surge in Reliance’s net profits. This is because their commission, which is linked to profits, has gone up.
The decision to leave the fixed salaries of the Ambanis unchanged is in line with the international practice of linking the top management’s compensation to performance.
In recent times, the variable pay — or the performance-linked part of the compensation — of top executives has far exceeded their fixed pay.
Reliance, however, is not quite generous in rewarding its top management. The total compensation (salary, perks and commission) payable to the two brothers and the two wholetime directors — .R. and H.R. Meswani — has been capped at 0.67 per cent of the company’s net profit. This is significantly lower than the country’s most leading companies.
Among the most generous ones are Dr Reddy’s Laboratories, Wipro and Hero Honda.
In 2001-02, Dr Reddy’s paid about 3.72 per cent of its net profit in compensation to its chairman, K. Anji Reddy. He received Rs 3.4 crore in total compensation in 2001-02 (the last available data).
Vivek Paul, the vice-chairman of Wipro, who is arguably the highest paid non-promoter executive, received Rs 4.02 crore in annual compensation or about 0.61 per cent of the company’s net profit in 2001-02.
Even EIH — the company that manages the Oberoi chain of hotels — paid about 1.83 per cent of its 2001-02 net profit in compensation to its two top executives, P.R.S. Oberoi (chairman) and S.S. Mukherji (managing director).
But the income of the Ambanis and Premjis of the world is not limited to their salaries, perquisites and commissions alone. They earn many times their income from these sources in dividends. The Ambanis, for instance, are going to earn over Rs 200 crore in tax-free dividend this year.
There is a growing worldwide trend where ordinary shareholders have started speaking out against the top-drawer salaries being paid to top executives.
Last week, furious shareholders voted down a fat-cat pay award for the first time in UK corporate history, sending out a clear signal for other companies to curb boardroom excesses.
Investors in GlaxoSmithKline, the world’s second biggest drugs group, defeated its remuneration policies, after being enraged by a £15-million “golden parachute” for Jean-Pierre Garnier, the chief executive, if he left the company.
Garnier, who was paid more than £4 million in salary, bonus and shares last year, stood to receive the pay-off even if he was ousted for poor performance.
In an unprecedented show of shareholder activism, investors representing 50.72 per cent of the company’s shares voted against the policy at the annual meeting in London.