Chapter 8A: what is a fair wage for an employee ? Does an employee really play any significant role once the capital is tied up, strategy frozen and regulatory capture in play ?
It depends on who you ask. If you ask the employee – every single one of them will tell you how little they are paid. How hard they work. And how much everyone else is getting paid. This is the Pay Commission model of government. They all conspire to agree on how little they are paid – and end up with such a massive increase – that the private sector has to increase their salaries to keep pace with the government.
The right person to ask is the venture capitalist. This is the entity who takes the financial risk. And the answer is “pay him the equivalent of the starting salary in his college multiplied by 2x if he is between 30-40 years of age. And 3x if he is 40-50 years of age. If he is above 50, pay him a token salary. In the 1980’s my alma mater AF Ferguson did salary surveys. Anita Ramachandran did these for financial institutions and it led to funny results.
In 1988, Pradip Shah the founding member of HDFC left to do a MBA and then joined CRISIL. He was a CA gold medalist and had done a MBA from Harvard. He got Rs 7500/- pm earning him the distinction of being the “lowest paid Harvard MBA in the world”. He joked about it but it wasn’t funny.
1990 July — he had surgery at Tata Memorial Hospital but then was advised surgery again by Mass General Hospital. He actually had no money. His wife was not working looking after their 3 years old son. Mr HT Parekh and Mr Vasant Sheth visited him and offered to help financially. Two other offered money from their own resources; then Mr Vaghul came to know and he took it to CRISIL’s board. He took $ 18,000 in TCs from CRISIL in October 1990, went for he successful surgery and returned. On the way back, from the airport, he dropped in at CRISIL to attend a Rating Committee meeting, almost collapsed from pain, did the radiation therapy in India and returned $ 14,500 to CRISIL.
Now compare this to the USD 800m corpus of Faering Capital and the HNI status of Paresh Sukhtankar. The ai party in the valley is taking salaries to a whole new level. I will come back to these in a later post.
The PSUs on the other hand give very little performance bonus. The general belief is that in a true committee run company – an individual can do little by himself. And in fact, he should do nothing in his own.
HDFC Bank was a proxy for Citibank. And the management team came from Citibank. HDFC Ltd had just lend their name and in the end got acquired by this downstream entity. The Citibank model was to find academically brilliant, abnormally ambitious, and ethically flexible individuals from mediocre families and small towns. And then to expose them to the good things in life. And show them a way to get those. There were exceptions of course – just that I don’t know of any.
