CEO's 50% Salary Hike at TCS: How Should HR Professionals Interpret This News?

When we read powerful and inspirational stories about how CEOs across the world are signing for $1 or ₹1 salary, here's an article on the hike of the CEO at TCS by 50%.

We all understand that the share market needs to be fed with such stories to boost the investors' morale. However, such information sets the standards for the internal and external stakeholders. How do you see this news as an HR?

TCS to hike CEO's base pay by 50%

I do not believe that investors' morale is boosted by such inappropriate hikes. Investors are only after a return on their investment in the form of either dividends or a rise in the share price, so that they can cash in on the profits. Therefore, there is no such thing as investor loyalty; investors will move to where gains can be made.

In fact, when CEOs are remunerated handsomely, any further hikes are seen as a potential loss of dividends, money that would otherwise go into the pockets of investors. As an investor, my morale is boosted when CEO pay is increased by the rate of inflation or thereabouts. The reason most often cited is that the value of the CEO has risen, as in this case, TCS revenue went up by 14% against an industry average of 11%, as per the article.

By hiking the salary, the board has reacted out of fear that the CEO will be poached by a competitor. In my opinion, this fear is unjustified as most TCS competitors will have a different infrastructure, culture, strategy, or even the resources to match those of TCS. As TCS is a global organization, the fear of poaching is not restricted within India; this CEO would be in demand worldwide. The CEO of Pepsi comes to mind!

While external stakeholders are not the concern of HR (it is the concern of the organization's publicity and media relations department), internal stakeholders are a different matter. HR will hear of grumblings, particularly when increments are in single percentage figures, if at all. However, it will all die down after a couple of weeks, and it will be back to business as usual... until the next CEO hike!

Regards,
Harsh

Like Harsh mentioned, stock/trading conditions may not be affected very much by this measure—maybe for a short while at the most. However, purely from the HR perspective, it would be more interesting and, I guess, appropriate, to check if the same largesse has been doled out to the general-grade employees. After all, TCS is what it is today due to the whole team—from the junior-most employee to the CEO (like it's for any and every organization)—not just due to the CEO or a few of the top honchos.

If the rest of the staff has been given the standard single-digit hikes—being given the usual reasons of the poor IT industry situation, etc.—then that reminds me of the abnormal and indecent hikes the US companies that were the cause for the 2008 bust (which eventually needed Federal Financial Support for survival) gave their CEOs soon after the Federal funds came in, that led to even the newly elected President Obama to react with abhorrence. Except that in the case of TCS, it would be at the expense of the foot soldiers.

If, however, the rest of the staff also did get similar grand hikes (if not around 50%), I think we ought to congratulate and appreciate the TCS Management/Board for laying the foundation for such an equitable distribution of the fruits of collective labor in the Indian IT industry.

Regards,
TS

In my personal opinion, such hikes are abnormal and unfair unless the other equally important stakeholders, namely investors and employees, are also treated alike.

A Company is Not a One-Man Show

A company is not a one-man show unless it's like the Virgin Group (with a charismatic Richard Branson driving the business) or like flamboyant Dr. Mallya's companies (unfortunately, KFA cannot even pay overdue salaries to its employees), to name a few. Surprisingly, even family-run companies have not showered such largesses on their CEOs.

I think it's bad for business at the end of the day!

To add further to this topic/issue, does this indicate a switch in the generally known and understood Tata Mindset? Meaning, is the famous and well-known positive mindset of the Tata Group/Name undergoing a subtle but sure change after the change of guard at the top of the Tata Empire?

I recollect the very positive and rarely exhibited Tata Mindset of 'Taking Care' just because that's the right thing, and not for any name/fame/profit-motive just after the 26/11 Terrorist attacks in Mumbai. I think this was posted in CiteHR too earlier.

Everyone, without exception, who was around the Taj Hotel during the attacks and suffered damage and loss of livelihood—including the roadside Chaiwala guys, Chatwalas, etc.—were all supported by the Tata Group in terms of financial and material support to get back on their feet ASAP. All this when the Tata Group didn't really have to do it, since none were even remotely related to the Taj Hotel [by some counts, they were even viewed as 'dirty' neighbors by the affluent]—frankly, had it been any other group, including some very well-known ones, they would have conveniently passed it on to the government or at best, taken good care to publicize that they did this and that.

Vis-a-vis this way of thinking and doing, what happened at TCS does indicate a 180-degree change in orientation/approach. I do hope I am wrong.

Regards,
TS

When we read powerful and inspirational stories about how CEOs across the world are signing for $1 or ₹1 salary, here's an article on the hike of the CEO at TCS by 50%. We all understand that the share market needs to be fed with such stories to boost the investors' morale. However, such information sets the standards for the internal and external stakeholders. How do you see this news as an HR?

[TCS to hike CEO's base pay by 50%](http://economictimes.indiatimes.com/tech/ites/tcs-to-hike-ceo-chandrasekarans-2014-base-pay-by-50-to-rs-15-lakhs-a-month/articleshow/20440660.cms)

I work as an expatriate in a large multinational company and am Indian. By virtue of my position as both an employee in a senior position that influences decision-making in my organization and as an office bearer in an NRI association, I am privy to major investment decisions in India by major corporations located in the country that I am based in. The mood of the investors is totally negative towards India. Just imagine it's been over 10 years, and neither land has been provided nor clearances have been given to major steel producers like Posco. Mittal's have withdrawn because even after 10 years, final clearances have not come in. And Mittal's, being Indian-origin owners of a British company, brought in emotions along with investment. Many manufacturers are relocating their investments into countries like Indonesia and other Southeast Asian countries like Vietnam, the Philippines, Thailand, etc. The growth rates that India has slid into from over 8% in 2006 to around 4% go to prove this, while the Southeastern countries, especially Indonesia, have grown from around 4.5% to over 6.5%, showing the shift. Political instability and uncertainty of the applicability of laws indicate this. The global investors were closely watching the Vodafone case. After the Supreme Court gives a judgment on the applicability of the laws, the parliament amends it to suit the personal vendetta that Pranab Mukherjee desired to exert against Vodafone, resulting in lots of investments being diverted to other countries.

One might say India cannot be ignored on account of its population. But the fact remains that India has limited capacities, and these investments come in to satisfy the demand. In case demand is more than supply on account of a lack of investments, India will have to import from countries like Southeast countries where investment is going into and lose precious foreign exchange. Added to these woes are political agendas like Singur which drive out investments. While Mamta drove out Tata's, the local community is facing starvation on account of their land gone and no jobs.

India is not doing anything to protect brain drain. The US is coming out with its new immigration policy which will facilitate Science and Technology graduates to obtain green cards the moment they graduate. Already, the IT industry has facilitated brain drain and this will further add to it. Chinese have addressed this very smartly by moving away from labor-intensive manufacturing such as Textile, Garments, etc to high-end manufacturing, ensuring better pay and a better quality of life. This results in China retaining their talent. While the textile and garment industries have moved to India leading to low income levels for the majority.

What India requires today is a vibrant industrial policy and a government with full mandate so that it can govern with no qualms about being thrown out. Or we need to move to a presidential form of Government so that politicians do not hijack the country to suit their personal agendas and deter investments.

I appreciate the above write-up. It is well-written, balanced, analytical, and deals with vital issues facing our country.

TCS and the Tata Philosophy

I would like to believe that the Tata philosophy always endures as the guiding philosophy of the industrialized economy, and the TCS incident is just an aberration or an exception.

Warm regards.

My take on this is something different. Once a person reaches the position of CEO, they always run the risk of getting fired if the business goes downhill, even if they are not solely responsible; factors could be market-driven or due to an economic downturn, and so on. Hence, with the risk element being very high, they have to be compensated during the time they are at the helm of affairs and running the show successfully.

Whereas with ordinary employees, the matter is different. Whether the business goes uphill or downhill, as long as you perform, your stability is assured except in the rarest of rare cases like that of Mr. Phanish Murthy! It is like Bollywood actors getting Rs. 5 crore and Rs. 10 crore for a movie lasting two hours, and their appearance may be restricted to just 1 hour and 30 minutes or so. Over a period of time, they run the risk of not getting any roles, and all those old actors may not be getting even Daddy roles or minor roles, unlike Big B! They fade slowly and surely, and unless they have money in hand, what they earned during their prime, it will be difficult for them to maintain a lifestyle befitting an actor of the past.

Hence, wherever the risk factors are very high, the compensation will also be comparatively high! This is similar to sports personalities. Beyond 40 years, they are into oblivion, and what they earn honestly, of course, has to be kept away for a rainy day! I know many professionals may not agree with my opinion, but this is MY opinion!

When the business goes downhill, the first affected are the ordinary employees. They are axed first in the name of downsizing and attempts to make the company lean and competitive. Before that, they have to go through bad patches of non-payment of overdue salaries and salary reductions. I have read reports of Kingfisher Airlines employees not getting salaries for months together, but yet to read any reports about the CEOs and senior executives facing hardships. Your argument is exactly what paves the way for giving obscene salary hikes to CEOs.

Industry Performance and CEO Compensation

What is so special if the industry as a whole performs at 11% and a company performs at 14%—just 3 percentage points higher? The average of 11 itself signifies that many more companies must have performed on a higher side too, to average out several low-performing companies.

Warm regards.

In my opinion, all such matters are related to the marketing strategy of the company. I would think "zillions" of times before considering a 50% salary hike. Well, it's tough but not impossible. When we talk about the CEOs of such top companies, I believe they deserve it. 

I think you missed the WHOLE point. The issue is NOT whether the CEO deserved the 50% hike or not—it's whether the same/similar treatment was given to the rest of the employees.

Regards,
TS

I second Sateesh; I raised this question to our Think Tanks because I found it very strange. A simple Google search will show similar announcements for CEOs' salaries across the world and, thereby, the news about the share price catapult and business growth. What does such an action stand for beyond the hogwash and PR effort? I am grateful for the in-depth understanding shared and insights on the Indian business scenario.

It's really good to read this type of news and achievements. It is remarkable as well and inspires other people in the organization.

I think you missed the WHOLE point. The issue is NOT whether the CEO deserved the 50% hike or not—it's whether the same/similar treatment was given to the rest of the employees.

Regards,
TS

And my question is, is it fair to compare the CEO with the rest of the employees in an organization?

I am not sure of your 'definition' of comparison. I don't think this is an issue of comparison—it's one of EQUAL treatment within the organization. Would the CEO (or, for that matter, any higher official) be able to do anything on his/her own without the support/effort of those down-the-line? Equally well, those down-the-line would ALSO NOT be able to do much without the guidance/support of the higher-ups.

Like the American slang saying goes: 'It takes two to tango.' So it INVARIABLY IS & WILL ALWAYS BE a collective effort for ANY organization. Each will have to give his/her best, relative to his/her role & responsibilities—that's when the organization, as a whole, thrives & grows.

Regards,
TS