In India Inc, Top Dogs Get Meat, Workers Bones

BRASS’ PAY AS PART OF PRE-TAX PROFIT RISES KIRAN KABTTA SOMVANSHI & CRYSTAL BARRETTO ETIG

The recent labour strife at carmaker Maruti Suzuki and Coal India may indicate a revival of hostilities between labour and management in an increasingly capitalist India as reward for management at corporations rises as a proportion of profits while it falls for workers. Directors’ remuneration as a proportion of pre-tax profit is rising while that of wage bill for workers has slid, a study of BSE 500 index constituents by ET Intelligence Group shows. While staff bill as a proportion of profit before depreciation, interest and tax or PBDIT decreased from 34% to 28%, it rose to 0.6% from 0.4% for directors. Kansai Nerolac’s staff cost grew seven times over the last decade while that of its directors’ surged 23 times, regulatory filings show. For Century Enka, it was 10 times for workers and 39 times for directors and Orient Paper & Ind is among the top with staff cost rising 23 times while that of the directors’ 91 times. There is no law limiting the remuneration for top executives, and discussions about ‘vulgar’ pay in the past were buried due to stiff opposition from the corporate world, saying that talent has to be rewarded. The reasons for the jump could be varied as statistics do not capture all factors including rising efficiency where far lesser workers are needed in a plant than a decade ago. RBI Tracks Financial Sector Rewards But in the financial sector, at least in commercial banks, the Reserve Bank of India keeps a close watch on top management pay. Prime Minister Manmohan Singh in the past had warned against corporate greed. Managements should “resist excessive remuneration to promoters and senior executives and discourage conspicuous consumption,” Singh had said. For our analysis, we selected companies that comprise the BSE 500 Index from 2001 to 2011. But due to changes in the index over the years and lack of data on directors’ remuneration, we chose 236 companies among them. For these companies, we have analysed the growth of sales, PBDIT (profit before depreciation, interest and tax), staff costs and directors’ remuneration from 2001 to 2011. The data showed that on an absolute basis, sales have grown 4.8 times and PBDIT has increased 4.6 times. Against this, staff costs have grown by 3.7 times during the same period. India Inc rewarded its top management handsomely during this period. Beating the growth in sales and PBDIT, directors’ remuneration increased 7.4 times over the decade -- double the growth logged by the total staff bill. It is pertinent to note here that inflation rose significantly during this period. Given the base year of 1993-94, the annual wholesale price index for all commodities doubled between 2001 and 2010. The WPI increased from 155.7 in the fiscal year 2001 to 242.9 in FY10. This increase would, in turn, have a harsh impact on living standards. Segregating our sample sector wise, we find that in the case of sectors such as construction, oil and gas, auto and auto ancillaries, diamond and jewellery industry and entertainment and media industry, wage growth has not kept pace with growth in sales and PBDIT. For instance, while the cumulative PBDIT in case of four construction companies rose 4.5 times, the cumulative staff cost has only doubled. However, the directors’ remuneration has risen six-fold. The case of auto major Maruti Suzuki is a glaring one. The company’s total wage bill has grown 3.5 times but this increase looks quite miniscule when compared to the huge jump in the company’s PBDIT which has increased by 32 times in the last ten years. The data may only reflect a part of the wage story since wages paid to blue-collared employees are not captured separately.

Courtesy - Economic Times