CEO salaries should be fair multiple of lowest paid employee of company, says Narayana Murthy

Company CEOs should get remuneration that is a fair multiple of lowest paid employee of that firm, believes Infosys founder Narayana Murthy. Speaking at the 47th National Management Convention (NMC) of All India Management Association (AIMA), Murthy said that if the lowest paid employee’s remuneration was Rs 2-3 lakh a year, the CEO remuneration should be Rs 70-80 lakhs. 

In addition, the shareholders must know the remuneration in full detail and the variable part of the remuneration must be linked to long-term performance of the company, and not just the current results. 

“During the last five years there have been a few instances of serious governance deficits. This has created doubts among investors about the quality of corporate governance of Indian companies,” said N R Narayana Murthy, Founder, Infosys Limited. 

The main source of corporate scams, according to Narayana Murthy, is moral weakness and incompetence of the chairman of the board in the companies where scams happen. 

“When the CEO becomes more powerful than the board and the chairman operates at the pleasure of the CEO, then such things happen,” he said. 

According to Infosys founder, the biggest challenge in corporate governance is the agency cost, i.e. the cost incurred by management to meet the shareholders’ objectives. In the professionally managed companies, he says, management can push weak boards to extract unjustifiable compensation for themselves and use company’s resources for personal benefits, and the owner managers can use listed companies to enrich their private companies.  

He said that paying large severance packages to buy silence of outgoing executives has to be prevented by the board. 

Regarding whistle blowers, Infosys founder said that though the whistle blowers have been give legal protection, they still face harassment and social stigma. He demanded safeguards against bosses’ vendetta against whistle blowers.