Should there be a ceiling on salaries of top management?

TCS, the fourth largest employer in the country, is laying off about 12,000 senior employees from the company. In a statement on social media, the AIPC leadership spoke of the huge disparity in salaries in companies such as TCS. Can more jobs be saved by bringing about parity in salaries?

Praveen Chakravarty: AI will first be an attack on the massive pay disparity between the top management and average employee and bring enormous pressure to reduce that gap. With AI, we are realising that skills that what we thought were skills of the high end of the workforce are in fact automatable and being made redundant. AI is not taking away the jobs of barbers, gardeners, or plumbers. AI is saying, ‘If you are a hedge fund analyst, you are not needed’; ‘ if you are the CEO of a company, you are redundant.’ So, in this context, how can one possibly justify a 350-500 times ratio of CEO or top leadership pay to median employee pay in a company? In TCS, the CEO’s pay is about 325 times the salary of the median employee. And that is actually among the lowest in IT. In Infosys, the ratio is 850; in Wipro, it is 600. This ratio was perhaps 40-50 times in the 1960s and the 1970s.

Sridhar Kundu: The World Bank’s recent report said that inequality has come down in India. In India, we don’t have reliable income data. There are several agencies who put out some kind of data, but the authenticity of these data can be challenged. The Periodic Labour Force Survey report, published by the government, doesn’t highlight the wage gap across sectors. If you examine the microdata in detail, you will see that the inequality of wages as measured by standard deviation is higher for salaried employees compared to the self-employed. Wage inequality across sectors is persistent. The policy of minimising wage inequality via wage cut policy at the top level would reduce the average wage rate. Globally, the average wage rate in India is less compared to many developing countries such as China and the Philippines. In this context, I am pessimistic about the argument that a decrease in the wage gap can create employment opportunities in a sector. The upper limit wage fixation as a solution to inequality reduction and additional employment generation raises a few questions, though the truth behind this hypothesis is not clear to anyone. First, in a competitive labour market, can the private sector retain the quality labour force by fixing an upper wage limit? Second, can the government intervene by fixing a wage rate in the private sector? Third, is government intervention in fixing wages admissible by the private sector?

Companies are arguing during layoffs that the skill sets of retrenched employees were becoming obsolete. Can someone save their job by enhancing their skill sets?

Praveen Chakravarty: I don’t know why we still use phrases like skill enhancement. It is time to smell the coffee. This is not about skill enhancement. The so-called highest skills are the ones that have been automated and have been taken away. If anything, AI is telling us what the true essential services are; what we all refer to as ‘menial jobs’. AI is restoring dignity of labour. So I think the whole idea that skilled upgradation is the solution is completely flawed.

As the chairman of the AIPC, I can tell you there are 2-3 very concrete policy suggestions or ideas that we are coming up with. We will take these to both the IT Minister and to the chairperson of SEBI (Securities and Exchange Board of India). One of them will be about the ratio of pay disparity. For example, should there be a ceiling on the ratio of pay? I’m not saying everybody should have equal pay. But is there excess? Let us say there can be a policy idea that for all publicly listed companies, the ratio should be around 40-50 times, not 800 times. Is this idea bizarre? Will it destroy corporate India, as is the concern? Will it destroy productivity?

Let us take the most meritocratic professions in the world, which is sports. Do you know all sports leagues have a player cap ceiling? IPL (Indian Premier League) has a ceiling. Virat Kohli may be the best IPL player, but they don’t say he can get paid whatever he wants and that the market will provide it. The National Football League, the largest sports league in the world by revenue, has a ratio and pay cap ceiling. Sports leagues have their ceilings, and they have shown these have worked very well. Sports teams are still very competitive and their talent is thriving. So this notion that meritocracy and productivity will be impacted by a ceiling is somewhat exaggerated. The current ratio, going up to 800 times, is obscene, ugly, and abominable. So can I think, 50 times? Perhaps. Can that help save jobs? Yes. And this is a short-term solution while we figure out how we deal with labour market disruptions in the long run.

Sridhar Kundu: When a sector grows, the growth of employment opportunities in that sector should follow the same direction. In India, the service sector has shown a substantial growth rate over the last few years. So, the layoff in this sector is a little surprising. We may see this issue in a different context. India is a labour-surplus economy. Management of any organisation sees labour as a low-hanging fruit, and for any reason or sometimes none at all, it can fire labour with or without notice. For the service sector, there is a high substitution of technology for labour. Any adoption of new technology finds new reasons to lay off surplus labour. This may not be the complete picture for the present layoff, but it can be a possibility. Whatever may be the reason, if the labour layoff continues, it might impact growth in the long run.

Are there any policy suggestions to address this crisis?

Sridhar Kundu: Government intervention is important. AI has an important role in the service sector. The sector employs technologically efficient and educated people. AI can be a challenge for them. So we have to see where the government can intervene. This labour cannot be absorbed into the agricultural sector because these people are not going to add value to current agricultural practices. They cannot to be absorbed into government schemes such as MGNREGA (Mahatma Gandhi National Employment Guarantee Act) or any other kind of informal sector scheme. So, in that case, government intervention is quite important. Governments can improve self-employment activity. This has increased, according to Periodic Labour Force Surveys, so some kind of absorption of labour can take place in that category.

Praveen Chakravarty: There are several employee forums and unions in the IT sector that have reached out to the AIPC. Several more have reached out after my comments about the TCS situation. So I see a distinct effort in the direction towards collectivisation, mobilisation, and collective bargaining powers in the IT sector.

Our job as the principal Opposition party, the Congress party, it is to speak up for justice for the affected employees. But we are not here to argue against layoffs or against a company’s need to retrench or to downsize depending on business situations. I want be very clear about that. That is why I said this is far more nuanced. We are not an activist, Leftist organisation saying there can be no layoffs. Our nuanced approach is to look at the huge disparity in pay between the top leadership and the median employee in the service sector, specifically in the IT sector and in financial services. Second, we will be launching a series of stakeholder consultations regarding the draft proposal, which could include ideas such as what Bill Gates had talked about, say, a decade ago — a robot tax. Could there be tax that could be used as basic income or welfare for some of these affected employees? These are all just ideas at this point in time.

Labour is a State subject, so while we will try and persuade the Union government to take this issue up, we are discussing this with Telangana Chief Minister Revanth Reddy on what to do as Hyderabad is a very big IT centre. We will soon speak to the Karnataka Chief Minister as well.

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