Thursday, May 31, 2007

Why India Inc must heed PM's call

The PM's call for restraint on executive pay during his address to the CII last week continues to make waves. Today, Assocham meets to take a view on it. The barrage of comment, mostly negative, continues.

The point about executive pay was only one of ten points on a Social Charter the PM outlined for Indian industry and the PM did not make out a strong enough case for restraint. So, his plea came across as an attempt at moral policing. But a case for restraint certainly exists. Even in economies with good governance systems, excesses on this account are common and these tend to provoke outrage all round. In our system, where governance is still evolving, excesses can be egregious and the outrage, in our conditions, could spill onto the streets. Read my comments on this subject in my ET column today.

I notice that many commentators have simply lobbed the ball back into the PM's court. Corruption? See what your ministers are doing. Conspicuous consumption? Look at politicians' lifestyles. Inequalities? The problem is not executive pay but inadequate and badly targeted government spending on social infratructure.

These points are all valid. But there is another that is overlooked: politics is not a meaningful career option for large numbers of ordinary people in the way the corporate world is. A political career is also more risky, the rewards are long in coming and they accrue to a relatively small number of people. In this respect, a political career is comparable to celebrity sports and music. Besides, for good or ill, politicians and their lifestyles are not chronicled and celebrated the way those of corporate chieftains are.

Corporate pay thus has the potential to generate resentment as large a scale as the wrongdoings of politicians (for which latter there is some recourse through the election process). So, yes, while there is a lot that needs to be set right in politics, India Inc is not exempt from responsibility.

3 comments:

Raj said...

Prof, I agree with you. Huge disparity in income levels and resulting social inequity will create an 'aristocratic class'. A "french-revolution' style backlash will be inevitable.

Even within the corporate world, MBAs get a disproportionate award and this practice needs to be stemmed in the first place, instead of touting the 'supply-demnd' cliche.

Gabbar said...

I would like to disagree with you. From this point of view, entrepreneurship should be stopped and not encouraged because an entrepreneur might become succesful and rich and that might cause resentment?

Performance has to be valued and Indian corporates are doing exactly that. If a company is making profit then the person responsible has to be given a share otherwise he will stop working and the profits will stop.

Krishnan said...

Businessmen/leaders cannot win the publicity war, no matter what they do. Unless some central authority deems that there be no inequality in income or decides that there be some arbitrary ratio of the highest to the lowest salaries or benefits or whatever (irrespective of talent/contributions), there will always be expressions of class/economic envy - a strategy used very effectively by politicians in the US to garner votes, get to office and do what they want anyway. The Wall Street Journal had an editorial piece recently (May 23, 2007) titled "Poor get richer" which stated that according to a Congressional Budget Office study, low-wage households with children had incomes after inflation that were more than one-third higher in 2005 than in 1991. It should, in reality make it difficult for class warriors like Presidential hopeful John Edwards to talk about "two nations" one rich and one poor, but I am sure it will not stop him. In fact, the data suggests how he can use the CBO study to further advance his cause - I am waiting to see how he spins this - then again, politicians ignore what they want to ignore if it does not fit their ideological mould.