Saturday, November 25, 2006

>Bosses Digest upto 70% of reported Net Profit

While CEO salaries have been a topic of public debate in the West, they haven’t caught the attention of shareholders back home. It’s time they did, though. An ET study found that there are several corporates whose top executives draw a remuneration ranging from 10% to 70% of their reported profit after tax.

Take the case of optical storage media manufacturer Moser Baer. Promoter cum managing director Deepak Puri grossed an annual package of Rs 2.08 crore in FY06, which is 44% of the company’s net profit. Add executive director Ratul Puri’s pay packet of Rs 1.25 crore, and the duo took home 71% of the company’s net profit last year.

Other examples where executives’ annual package is disproportionate to the company’s net profit include iGate Global’s CEO Phaneesh Murthy, Ashok Chaturvedi of Flex Industries, Ashok Goel of Essel Propack, S Narayanan and H Nandi of MRO-TEK, Kalyan Ganguly of United Breweries, Hemendra Kothari of DSP Merrill Lynch, Kalanithi Maran and Kavery Maran of Sun TV, and Prathap Reddy of Apollo Hospitals.

The ET study looked at 400 corporate directors from 245 companies who have declared annual packages of Rs 1 crore plus as per their annual reports and calculated their compensation figures as a percentage of net profit.

While, on an average, the percentage worked out to a reasonable 0.61%, the interesting part is that this percentage figure is being skewed by about 60 companies where the compensation to profit ratio is low. These are primarily the big Sensex companies as well as some other large companies.

What’s noteworthy is that in many cases, the promoters of the companies are paying big cheques to themselves. This works out as a double bonanza for them as the fat pay packets come in addition to the company dividends they get as shareholders.

There are a clutch of listed companies whose board members account for more than 10% of the net profit. While individually they may or may not make it to the most disproportionately paid CEOs of India Inc, as a group they burn a significant sum.

These include companies like TajGVK, Mercator Lines, JK Paper, Omax Autos, Shree Cement, Amara Raja Battery, Hindustan Sanitaryware, ABC Bearings, EMCO, India Glycols, Gandhi Special Tubes, Ratnami Metals, Rico Auto, Sharda Motor, Saraswati Sugar and ZF Steering among others.

There are also some companies whose executives and directors are grossing more than the profits that these companies are netting. UK Modi, chairman and president of SBEC Sugar, has earned Rs 1.65 crore when the company reported profit after tax of Rs 0.11 crore for 18 months ended September ’05.

Then, there is the interesting case of South-based actor R Sarath Kumar, who was paid Rs 1.1 crore as non executive director of Radaan Mediaworks, which works out to 60% of the company’s reported net profit, 26% of operating profit and 3.7% of net sales. The chairperson of the company is his wife R Radikaa.

However, the country’s most highly paid corporate honchos head companies which generate a large amount of profits. For instance, Reliance Industries chairman Mukesh Ambani’s overall remuneration package of Rs 24.5 crore in FY06, accounted for a minuscule proportion of the profit generated by the company. Mr Ambani was the top paid corporate executive in India.

Some other companies who paid more than Rs 5 crore to one or more of their top executives but also generated huge profits last year include JSPL, Hero Honda, Cadila, Bharti Airtel, Cipla, Wockhardt, JSW Steel, Madras Cement, Gujarat Ambuja, Hindustan Construction, IVRCL Infrastructure, DLF Universal, Vardhman Textile and Apollo Tyres.

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