No cap on executive pay: Khurshid

Corporate Affairs Minister Salman Khurshid today allayed all fears of a cap on executive pay and job reservations in the private sector. "We trust them (companies).

We had too much control and there's no need for it," said Khurshid on the sidelines of a conference on corporate governance organised by the Confederation of Indian Industry. Talking about affirmative action, Khurshid said: "Empowerment and capacity building is the answer, not reservation."

Companies can now breathe easy that no cap on executive pay will be introduced in the Companies Bill 2009. Khurshid's predecessor, Prem Chand Gupta, had favoured such a step after the Satyam fiasco and collapse of global investment banks whose executives took home huge and guaranteed compensation packages.

This had led to fears that the Bill may try to restrict remuneration payable to executives. In the past, Prime Minister Manmohan Singh too has commented on skyrocketing salaries in the corporate sector.

At present, companies cannot pay more than 5 per cent of their net profit, as defined under the Companies Act, to any single director. The combined remuneration for directors, including the managing director, needs to be within the overall ceiling of 11 per cent.

However, this ceiling is proposed to be withdrawn in the new Companies Bill. It was introduced in Parliament last year but lapsed as the Lok Sabha's term got over. It has now been revived as the Companies Bill 2009.  

The statement sent a wave of relief across the corporate sector. "Why should there be a cap? It is the strength and advantage of the private sector to rewards its employees. It will help to improve, motivate and retain talent in an organisation," said Jindal Steel & Power Chairman & Managing Director Naveen Jindal.

"It will give companies the capability to compete for talent with multinational corporations. It will also help Non-resident Indians working abroad to come back to India," said Anoop Narayanan, partner, Majmudar & Co, a Mumbai-based corporate law firm. "When there is no cap on the performance of companies, any cap on performance and reward is not desirable," Ernst & Young Partner (human capital) and Global Leader (human resources advisory) NS Rajan said.

This comes at a time when the United States is trying to grapple with stratospheric executive salaries. President Barack Obama has called for more regulatory powers over executive compensation.

Mahindra Satyam

The government has approached the Company Law Board (CLB) to recall four of the six directors it had appointed on the Mahindra Satyam Board. While HDFC Chairman Deepak Parekh, former Nasscom president Kiran Karnik, former Securities Appellate Tribunal chairman C Achuthan and CII Chief Mentor Tarun Das have been recalled, former Institute of Chartered Accountants of India president TN Manoharan and Life Insurance Corporation nominee Suryakant Balakrishan Mainak will continue to serve on the board.

CLB is expected to issue an order in this regard on Monday. According to Khurshid, two directors have decided to stay put on their own accord. The government had appointed the board of the company, formerly known as Satyam Computer Services, after the then chairman and founder, B Ramalinga Raju, confessed that he had falsified the company's accounts for seven years.

Tech Mahindra, majority owned by Mahindra & Mahindra, won an auction in April for a controlling stake in Mahindra Satyam. The new parent last month revamped the top management of the company.