Financial Daily from THE HINDU group of publications
Saturday, Feb 26, 2005
Corporate - Corporate Governance
Info-Tech - Software
Premji's commission to be linked to incremental profits
Bangalore , Feb. 25
IN what could be considered a trendsetter for Corporate India, soap-to-software maker Wipro Ltd has decided to link its Chairman's commission to the incremental net profits and not on the overall net profits as has been the practice so far. The new compensation structure would come into force from next year.
Till the end of the current fiscal, Mr Azim Premji would get about 0.1 per cent of the aggregate net profits as commission apart from his salary, special allowance and perquisites.
Mr Premji, who owns about 84 per cent stake in Wipro, was recently re-appointed Chairman till July 30, 2007. In his new tenure, Mr Premji will get about 0.3 per cent of the incremental profits that Wipro wgenerates over the previous year as his commission from April 1, 2005.
"There is confidence and a growth story here, which Wipro may be contemplating," said a head-hunter, adding "It is very aggressive and could set a trend in high growth sectors like IT."
"We looked at suggesting a change, wherein it was thought that Mr Premji's commission should be coming in from the additional growth that the company achieves," said Mr Pratik Kumar, Vice-President, HR, Wipro Ltd. "It is a good symbolic message which is linked to growth and is expected to drive certain behaviour and momentum".
Analysts feel the move reflects well on the company's corporate governance policy.
Mr Pratik Kumar did not comment as to how this idea originated but said the compensation committee of Wipro strongly believed that top persons' commission should be linked to the growth.
The new formula, applicable to Mr Premji alone, is not being arrived at in anticipation of whether the company does well or not. Maybe, Mr Premji could get less if the company's profits are lower, which "we hope not though," he added.
Mr Premji has agreed for the new compensation structure and Wipro will seek shareholders approval at the next annual general meeting.
"This is definitely a motivation for a chairman to focus on enhancing the profits," said Mr E. Balaji, Executive Director, Staffing Solutions, Ma Foi.
"Ultimately, this is going to be good for the company and its stakeholders," he said adding, "Wipro could be adopting a novel way in trying to measure and reward its top brass when the focus in on enhancing the profits quarter-on-quarter".
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