After Infosys' Narayana Murthy more desi CEOs may join Re 1 salary club

MUMBAI: Infosys co-founder N R Narayana Murthy and his top brass, who would take home Re 1 salary, may set a precedent for rich Indian promoter CEOs struggling with a business slowdown. The Infosys pack follows an expanding list of global chieftains who have eschewed salaries to steer their corporations through one of the worst economic turmoil in recent history . Hewlett Packard’s Meg Whitman, Google’s Larry Page, Facebook’s Mark Zuckerberg and Fossil CEO Kosta Kartsotis are among the corner room biggies who have, of late, settled for $1 salary.

Murthy and his co-founders , however, would more than make up for the loss through another form. These Infoscians, who are also the IT firm’s big shareholders, would get performance awards and dividends, running into crores of rupees. Murthy, who is making a comeback to an executive leadership role in Infosys, earned a dividend of nearly Rs 10 crore in 2012 from his 0.41% stake. His son, Rohan, on the other hand, who will join the company as an executive assistant to the senior Murthy, received a dividend income of Rs 33 crore from his 1.38% stake during the same period.

Murthy and his team’s Re 1 salary will not attract any taxes. They will not have to pay taxes on dividend income as dividends are tax free in the hands of the shareholders.

Still, their move to let go salaries could add momentum for similar moves in other Indian boardrooms. A Crisil report said India Inc’s net profit fell 5% last fiscal, first since the financial crisis set in five years ago. Companies have struggled to pass on cost pressure in weak demand situation even as rising interest burden piled up additional pressure on profitability.

Ajit Premkumar of EAL Consulting said, “This is expected to motivate and boost employees’ confidence. Investors too like such austerity measures as it doesn’t cost anything to the company.”

The dollar-a-year concept started in the US during the World War I when people worked for the government on voluntary basis to help it during that crisis. They worked on $1 since the government forbid itself from accepting work without any compensation . The trend later percolated into the corporate culture. Lee Iacocca of Chrysler was the first CEO to cap his salary at a buck in 1978.

Infy Payouts

Although there are now many global CEOs in the $1 salary club, they earn their rewards through stock options and other extras. Oracle’s founder Larry Ellison earned $96 million through other incentives in 2012. Largely visible in new economy sectors like IT and social media, the concept of token salaries has moved into traditional sectors like banking and consumer durables. In the wake of the 2008-financial crisis, many CEOs opted for lower salaries to cut costs and to tide over the tough business situation. Former Citigroup CEO Vikram Pandit, who took over the reins in late 2007, went for one dollar salary till the Wall Street bellwether returned to profitability . In India, RIL chairman Mukesh Ambani slashed his salary by 66% in 2008-09 .

“However,there is a difference between a promoter-CEO and a professional CEO. While both may go for a single digit salary, unlike the former , the non-promoter CEO is granted additional stock when fortunes change,” said R Suresh, CEO, Stanton Chase International.

Industry analysts said that linking a CEO’s compensation to stock instead of salary helps as the stock price would reflect the management’s performance. And if the CEO performs, he would be handsomely rewarded by a strong appreciation of the stock price. Some, however, argue that Re 1 or $1 salary is more of a short-term approach to tide over a crisis situation .