Economic Times of India
Indian CEOs Take Pay Cuts to Avoid Layoffs
President Barack Obama had to throw his weight to get Wall Street bosses to cap their salaries, but across India Inc several CEOs and senior executives are taking voluntary salary cuts to stave off job losses and help their firms' stretched finances.
As the economic slowdown bites into profits forcing companies to explore ways to cut costs, Indian executives are presenting a picture of contrast to their peers in the West, where there is resistance to forego bonuses and perks.
For example, Bharat Forge MD Baba Kalyani has taken a 20% salary cut after his company reported a consolidated loss of Rs 36.56 crore in the third quarter which ended in December, compared with a profit of Rs 70.96 crore for the same period last year.
He is not the only one. Jet Airways CEO Wolfgang Schauer has announced a 25% cut in his salary. The CEO of a prominent automotive company based in south India, who requested his name and his company not be identified, has taken a 20-30 % cut in his salary package.
While for some executives, these moves demonstrate empathy and leadership by example , for others it's just simple business necessity. "We didn't do it because it looks nice, but it was essential for us to do it... People can't operate in their own space when the organisation is struggling," says NIIT CEO Vijay Thadani.
The company, which saw its leadership team take a voluntary 25% cut in remuneration just two months ago, posted a 60% drop in net profit during the last quarter. Delhi-based Spice Group has created an 'owners club' of 18-20 people consisting of CEOs and promoters last November, and all members of this club took a voluntary pay cut, letting go 50-60% of the cash component of their salaries until the market rebounds.
"At this time, businesses need cash, and we need to do our bit to ensure that," says Spice chairman B K Modi. Spice plans to reverse the cut once the BSE Sensex crosses 15,000 points. Industry watchers say such voluntary salary cuts by top management are more common among entrepreneurial companies.
This is because when the promoters are the CEOs themselves, they take the onus of their business more sincerely than the outsider appointed to the position. While they are concerned about gains and losses, they care as much about their businesses.
Some feel that the strength and character of an institution shows up when people come forward to initiate change. In times of difficulty, CEOs need to set precedent with their actions. Besides showcasing leadership, such actions could help restore confidence among employees. At Infosys, the abiding principle is that leaders need to show the way before a general salary cut.
"We will lead by example in taking the initiative if it is required," says Infosys director (HR) TV Mohandas Pai. The company has already slashed the variable bonus for its board members by as much as 40% in the second quarter, and plans another 50% cut for the third quarter.