India’s richest man takes a pay cut

October 15, 2009

Mukesh Ambani has accepted a two-thirds cut in his salary in 2008/09 as chairman and managing director of Reliance Industries. His total compensation fell 66 percent to 150 million rupees.

The move comes just days after Corporate Affairs Minister Salman Khursheed warned firms against paying huge salaries to top company brass.

Ambani’s “desire to set a personal example of moderation in executive compensation” may be in line with the Congress government’s efforts to shore up public finances with an austerity drive of its own.

Excessive compensation has sparked outrage across the developed world after years of multi-million dollar bonuses paid out to executives, even at money-losing firms.

Politicians and policy makers have advocated curbs on these salaries, a theme echoed at the G20 meeting in September.

Ambani’s revised pay package is a far cry from the 440 million rupees he got last year but the salary cut is not seen as making too much of a dent in his wallet.

Earlier this year, Forbes magazine pegged Ambani’s worth at about $19.5 billion in its list of the world’s billionaires.

Within hours of the Reliance Industries statement on his salary, Twitter users sympathised with the ‘poor little rich boy‘. Some suggested it could be a move to pay less tax.

Is Ambani’s pay cut a genuine attempt at bringing in moderation in executive salaries?

11 comments

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At least one corporate czar seems to have been of the same mind as Company affaires minister Salman Khursheed’s call of austerity in corporate salaries.

The prime minister though when asked recently about his observations made along similar lines said that he had just made a general observation and there was no proposal before the government as such.

So is that a good move?

In economics what is good for the individual may not be good for the whole. As Keynes explained if everyone starts being thrifty it may make the economy spiral downwards.

So if everyone follows Mukesh Ambani could it be good for the economy and society?

On the other hand is the argument that conspicuous consumption in an underdeveloped country encourages wasteful expenditure which should be used instead in asset building.

The proof of the pudding would be not how much Ambani has cut down but where.

Posted by Vipul Tripathi | Report as abusive

Hats off to Mukesh Ambani for making the decision. People will always find faults no matter what you do. At least he has shown that Big executives of Companies can take decision not sparked by greed but compassion.

Posted by Harv | Report as abusive

India’s richest man takes a pay cut – what an Irony.. People like Ambanis can live of their wealth for generations to come. If he is taking a paycut, you cannot expect everyone to take as all may not be as wealthy as these giants.

Posted by Suresh | Report as abusive

this is the right decision made by mukesh ambani during recession period. instead of closing offices ,branches or factories we have to focus on cost reduction so we can survive. other corporates have to follow this.

Posted by owais | Report as abusive

Isn’t this really good publicity? True austerity needs no advertisement to herald it. Poor man what will he do on 15 Crores?

How many have not heard about his new house…..
“valued at Rupees 4000 crores….staff of 600 (sic) to do the maintenance activities. That gives a ratio of 1:100 for people living in the house and those who are paid to take care of it. The six lucky (?) ones are the man himself, his wife, his 3 children and his mother Kokilaben. The family will be moving in from their old home ‘Sea Wind’ which was a 14 floor building at Cuffe Parade.”
(http://aavaas.com/2007/11/04/mukesh-amb anis-new-house-anthill/):

How about that for true austerity and cutting back on waste?

Is my response a case of sour grapes? I wonder…

Posted by Dara | Report as abusive

Ambani takes home 5% as commission on profits of RIL. That works out to around 800 crores as of last year as per one estimate. Further, he is buiding a palace in Mumbai. Can we expect that he will be giving it up. Also who is bearing the expenses for this palace with the helipad?

Posted by Ashish | Report as abusive

One could have respected this move by Mukesh as his way of pitching in to the new phenomena of salary capping and austerity drives if it were not for his past record and moral fibre. A similar move by, say Narayan Murthy, would be perceived as genuine but coming from Mukesh it seems like a gimmick. Also the insignificant (relative) amount makes it easy to do and gloat. If he is so concerned about such things, why not let the govt earn some revenue from KG-6 – A NATIONAL ASSET!

Posted by Prateek | Report as abusive

the move also comes after a 13 rupees dividend announcement.
Can you guess how much he made by it :)

Posted by Aditya | Report as abusive

Though i like Mukesh a lot, Just for Maths if he takes a salary cut of 26crores as reported it means he is poorer by 18.5 crores at 70% take home. At 18.5 crores his company market value increases by 370crores at 20 times PE. Which means his personal networth increases by 185 crores since he holds close to 50% stock. So moral of the story the government loses 8 crores in income tax while he becomes richer by 185 crores, so how does his austerity of pay cut helps the indian government.

I think someone should advise Salman Kurshid that Pay cuts should be taken not by sole propreitor or people who hold huge stocks of their company but someone like ITC chairman or other corporate executives who have no shareholding of their company or other companies where promoters have borrowed heavily from FI/Banks.

In case of reliance Mukesh forcing a pay cut on himself will also force his other executives to take cuts voluntarily & that is good news for his market cap valuation. No doubt why i like Mukesh is for these very reasons of giving shareholders value a tradition with reliance industries.

Posted by Vijay | Report as abusive

If someone really wanted to cut the compensation of agent (Company’s Management) for the overall benefit of Company and Principal (Shareholders), they should do it by cutting their commission on Net Income of the company and not by just reducing basic salary which is negligible when compared with the overall take home income (Salary + Commission)of the individual

Posted by Amrit Goyal | Report as abusive

This is something very tricky….u can’t b sure about the things(business policies) until u manipulate them….if he is so much concerned ,then he should cut down his new house-cost atleast a little….but i m sure he wouldn’t b doing this….also this decision will only increase his worth since this(decision) will b imposing pressure on others to cut down their their salary voluntarily…..so dont b very excited…..when it comes to making money these people are dam smart………….

Posted by vishal | Report as abusive