As the Indian economy tries to come out of the shadow of the economic downturn, the top honchos of India’s stock exchanges are taking home pay packages on a par with – and in one instance even higher than – what their counterparts are getting at most international bourses. This, despite the fact that Corporate Affairs Minister Salman Khurshid, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Prime Minister Manmohan Singh have appealed to the corporate sector to desist from paying excessive remuneration to senior executives and to discourage conspicuous consumption. The Prime Minister went to the extent of issuing a stern warning against non-competitive behaviour and cartelization. Excessive compensation has sparked outrage across the developed world after years of multi-million dollar bonuses paid out to executives, including those of money-losing firms.
The payouts to MD Ravi Narain (Rs 6.89 crore plus perks) and Deputy MD Chitra Ramkrishna (Rs 4.21 crore plus perks) constitute about 1.5 per cent of NSE’s consolidated net profit of around Rs 750 crore for 2009
Among all the exchanges in India, the compensation levels at the National Stock Exchange (NSE) for its top managers, including the MD and Deputy MD, are mind-boggling. The payouts to MD Ravi Narain (Rs 6.89 crore plus perks) and Deputy MD Chitra Ramkrishna (Rs 4.21 crore plus perks) constitute about 1.5 per cent of NSE’s consolidated net profit of around Rs 750 crore for 2009. Narain’s compensation package is higher than the basic salary of London Stock Exhange CEO Xavier Roulet (Rs 5.6 crore) and almost on a par with New York Stock Exchange Euronext CEO Jean-Fancois Theodore (around Rs 7 crore).
Other highly paid officials of Indian stock exchanges for 2008-09 include Madhu Kannan, CEO, Bombay Stock Exchange (Rs 1.6 crore), R Ramaseshan, CEO, National Commodity & Derivatives Exchange or NCDEX (Rs 1.5 crore), and Joseph Massey, MD & CEO, MCX (Rs 1.39 crore)
NSE, generally perceived as a government firm considering most of its promoters are public institutions, actually filed a petition in Delhi against the CIC, stating that it is a non-government private-sector company and hence should be exempt from providing information under the RTI. It argued that its accounts are not submitted to the CAG and it is also not a listed company and therefore under no obligation to divulge information to the public under RTI. The compensation levels at NSE for its top brass are extremely high even by private sector standards but they are astronomical considering that it enjoys a virtual monopoly.
Its monopoly is evident from the fact that its Gross Profit Margin stood at 70 per cent. Being a private sector monopoly, one fails to understand as to why no serious steps are taken to promote competition and reduce cost of transaction to benefit millions of retail investors and offer them improved services. This appears to be a classic case of a private sector firm enjoying a near-monopoly depriving consumers of cost and service efficiency.
Is the compensation committee of the NSE impacted by the “Lake Wobegon Effect”, widely cited internationally as a potential cause for rising CEO pay? Do we have the home-grown version of Richard Grasso (the ex-NYSE chief against whom New York Attorney General Eliot Spitzer filed a lawsuit seeking return of some of Grasso’s exorbitant pay package) in India? The NSE honchos are the ones who will take the biggest hit under any regulation on remuneration and incentives in the financial sector or even emergence of competition in their segments of business.
If NSE is a for-profit, private-sector entity, how is it in a position to ensure support of all stakeholders to perpetuate its market monopoly? BSE is not able to fight back and all regional stock exchanges are virtually dead. NSE makes huge profits out of cash and F & O segment and is not known to be proactive in developing new market segments. It’s little wonder that, because of lack of competition, all the new market segments such as corporate bond market, wholesale debt market, and the like have failed miserably. India might have suffered a huge opportunity loss due to lack of deepening and widening of financial markets. Are the extremely high compensation levels for the NSE top brass producing perverse results and anti-competitive outcomes?
We need to take lessons from the failure of the US financial system, where investment bankers drawing huge salaries resorted to uncontrolled financial innovation and hid the real worth of assets due to laxity on part of the credit rating agencies. Salaries in institutions that are self-regulatory and enjoy some sort of monopoly cannot have the same salary and incentive structure as a purely commercial enterprise, whose primary motive is maximizing profits. One such institution is the NSE which enjoys a monopoly in the country in the equity derivatives segment.
The government should therefore cap the salaries drawn by executives working for institutions such as credit rating agencies, stock exchanges and clearing corporations which have a sensitive role to play in the country’s financial sector rather than constraining private sector companies across the board.
The author is retired as Professor from the University of Delhi in 2024. He is an alumnus of IIM Indore and holds a PhD from the Delhi School of Economics. An investor activist and former member of various SEBI committees. He taught Capital Markets and Investment Banking at leading business schools of India.
