Disparities in pay ratios
– Professors from IIT-B conducted a study on Nifty-50 in 2020
– The study revealed growing disparities in the salaries of C-level executives and other staff
– The highest pay ratio is 1:752, which means the highest paid person receives 752 times the salary of the employee at the median salary
– The lowest pay ratio 1:39 was at Maruti Suzuki
Mumbai: Guess what is Pawan Munjal’s annual salary package at Hero Motocorp? Readers will be surprised to know that Munjal was returning home earning an annual salary of Rs 84.6 crore, that too in 2018. What the median worker earns in a year, Munjal earns
for half a day’s work.
Data on earnings ratios have not been studied extensively in India to understand inequality. Since 2015, a rule of the Securities and Exchange Board of India (Sebi) requires listed companies to disclose compensation to their management vis-à-vis other employees. The disclosures are required under section 197(12) of the Companies Act 2013, read together with Rule 5(1) of the Companies (Appointment and Remuneration of Management) Rules 2014.
Publicly listed companies reported median employee salaries and compensation paid to “key management personnel” (KMP).
The median is like an average, which indicates the salary level at which half of the employees earn below and the other half above. If the median is, say Rs2 lakh per year, that means half of the employees are earning less than that.
The ratio of the median to the salary of the highest paid KMP (or pay ratio ‘) is a measure of salary inequality within the company. A pay ratio of 2 means that the KMP is paid twice as much as the median/middle employee �� i.e. if the median pay is Rs2 lakh per year, the highest paid person gets Rs4 lakhs per year.
In 2020, Meghna Yadav and Reetika Khera (Associate Professor of Economics at IIT, New Delhi) compiled these ratios for 42 private companies on the Nifty-50 list for 2019-20 (the other eight are public companies that are exempt). disclosure). Bizz Buzz has a copy of the research study.
Two highlights of the analysis bear repeating – the obscene levels of inequality and the lack of diversity among those at the top (discussed later). Even within Nifty-50 companies, there is huge pay inequality. The highest pay ratio is 1:752, which means the highest paid person receives 752 times the salary of the employee at the median salary. The annual remuneration in this case was Rs84.6 crore – that of Pawan Munjal at Hero Motocorp. The lowest pay ratio was at Maruti Suzuki, at 1:39. The average of these pay ratios is 1:259.
The average median salary in the NIFTY50 is around Rs 6 lakh per year, compared to the average of Rs 16 crore for the highest paid KMP. These inequalities can only be called obscene because National Sample Survey data for 2015 suggests that only 18% of male workers earn more than Rs 10,000 per month. Median salaries in the NIFTY50 are nearly six times that amount.
The study, part of Malcolm Adiseshaiah’s lecture, authored by Dr Khera earlier this year, also found that despite such high compensation for the highest paid employee, for 15 companies (out of the 37 for which this data was available) the salary increase percentage of the highest paid person exceeded the salary increase of the median employee! These companies are not committed to creating flatter compensation structures.
Have things changed due to the economic shock linked to the pandemic?
In India, at least some big private players were more willing to lay off employees or cut salaries than to hit top CEOs. For example, Infosys reported performance-based exits and the number of employees fell by 3,000 in the first quarter of 2020-21.
Salil Parekh, the highest paid person at Infosys, exercised stock options worth Rs 17.03 crore in 2019-20, which is as high as the compensation paid to him . The following year, his compensation, including stock options, rose to nearly Rs 50 crore.
Regulations relating to the disclosure of pay ratios exist in other countries – for example, from 2020 UK companies with more than 250 employees are required to disclose pay ratios. Also in the United States, the United States Securities and Exchange Commission has required such disclosures to be made since 2015. By this measure too, India appears to be among the worst in the world.
The Guardian reported that the CEOs of the 100 largest companies received the typical annual salary of a worker within 33 hours. By comparison, if Munjal works half a day, his salary already exceeds the annual salary of the median employee.
In the public sector, according to data presented in Vaishnav and Khosla (2016), the wage compression rate is 12.5. The lowest reported salary for public sector employees is Rs 18,000 and the highest is Rs 225,000 per month. This probably underestimates the discrepancies as it does not seem to take into account low-paying jobs such as those of Anganwadi workers, who are usually paid less than 10,000 rupees per month.