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Aug. 1: Telecom titan Bharti Airtel has proposed to pay its founder Sunil Mittal Rs 70 crore a year.
Shareholders will get to vote on Mittal’s pay hike at the next annual general meeting.
The pay increment amounts to a staggering 154 per cent over the Rs 27.51 crore that Bharti Airtel’s chairman and managing director drew as gross remuneration in the year ended March 31. In 2009-10, Mittal was paid Rs 23.5 crore.
Late in the evening, Bharti Airtel scrambled to put out a disclaimer. The company said this was only an enabling resolution and Mittal would not be paid the hefty sum in 2011-12 as the company’s human resources committee had decided not to give him an increment this year.
Mittal, a 53-year-old graduate who grabbed one of the four licences for mobile telephony that were auctioned to private players in 1992, will complete his five-year term as managing director of Bharti Airtel on September 30. The board has recommended his reappointment for another five-year term starting October 1.
Bharti Airtel has proposed a total fixed pay (which is inclusive of salary, allowances and retirement benefits) of up to Rs 20 crore per year for Mittal.
He will also be entitled to performance-linked incentives of up to 200 per cent of the annual fixed pay in a financial year and perquisites worth up to 50 per cent of the fixed pay. The total payout will not exceed Rs 70 crore in any year.
In 2010-11, Mittal got salary and allowances worth Rs 9.59 crore, performance-linked incentives worth Rs 17.87 crore and perquisites worth Rs 4.83 lakh.
Mittal is at present entitled to a fixed remuneration of Rs 10 crore plus variable pay and other benefits.
The proposed remuneration is “an enabling one and sets out the maximum amount that can be paid to Sunil Mittal over a period of five years or until September 30, 2016,” the statement added.
In May 2007, Prime Minister Manmohan Singh had advised Indian private companies to stop paying “vulgar salaries” to its top executives. The move was then seen as an attempt to bring about some moderation in the hefty packets that corporate shoguns had started to receive.
Salman Khurshid, then corporate affairs minister, made a renewed plea for frugality in executive pay packets in September 2009.
In response to the strident calls for austerity, Mukesh Ambani — India’s richest man and chairman of Reliance Industries — slashed his pay packet in October 2009 by 66 per cent to Rs 15 crore from just over Rs 44 crore. He hasn’t taken a hike in pay since.
But the Bharti Airtel resolution signals that the days of contrived austerity may be over.
Under the Companies Act of 1956, the top manager in a company can be paid up to 5 per cent of the net profits of the company. The overall remuneration that can be paid to top managers is capped at 10 per cent of net profits.
The Rs 70-crore pay packet for Mittal will arguably make him the highest paid corporate honcho in the country.
In 2008-09, Anil Ambani was ranked among the highest paid chief executives in the country and earned over Rs 52 crore from his five listed companies.
But the younger Ambani scion has since drastically slashed his pay packet and in 2009-10 took home a paltry Rs 6 lakh, largely in the form of sitting fees, from his four group companies: Reliance Communications, Reliance Capital, Reliance Power and Reliance Infrastructure. The group is yet to release the annual reports for these companies for the year ended March 31, 2011.
The rules allow a top executive to draw his remuneration from more than one company but the overall sum has to be within the 5 per cent cap of any one company.
Ratan Tata, who is on the board of at least seven listed companies from the Tata group, gets a cumulative remuneration of over Rs 8.72 crore, which is in the form of sitting fees and commissions. The highest remuneration that he received during 2010-11 was from Tata Motors at Rs 2.52 crore.
The 5 per cent cap on managerial remuneration to the top honcho is virtually meaningless today since that limit was set at a time when private companies were very small. Since liberalisation in 1992, the net profits of private companies have swelled to huge sums.
For example, Reliance Industries — the largest private conglomerate – earned a net profit of Rs 20,286 crore in 2010-11. If it paid 5 per cent of this sum as managerial remuneration to Mukesh Ambani – the limit set in the existing Companies Act – RIL would have had to fork out Rs 1,014 crore to him. By taking a pay packet of Rs 15 crore, Ambani has capped his payout at 0.07 per cent of the company’s net profits.
The Companies Bill, 2009, has proposed to put a more realistic cap on the payout to the top executives of a company but hasn’t spelt out the percentage yet. Under the proposed legislation, shareholders will have to pass a special resolution on managerial payout and the company will not have to seek prior approval from the government.
Executive compensation had turned into a hot-button issue after the Group of 20 nations met in Pittsburgh in September 2009 and laid down principles for the payment of high bonuses to corporate chieftains around the world.
The G20 leaders had then felt that the tantalising carrot of high bonuses had prompted chief executives of several banks and financial institutions to adopt risky investment strategies that precipitated the global financial crisis in 2008.
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