Editor Musings – CEO Salaries, Jhunjhunwala interview, Corruption Index

India CEO’s are Paid Less Did you know that CEO’s in India are paid $30,000 a year less than their BRIC (Brazil, Russia, India, China) counterparts? A recent study by the Hay Group (a global management consulting firm) divulged the disparity. India’s executives make on average $92,000 while their Russian, Chinese, and Brazilian peers made significantly more. According to the Hay Group report (adjusted for taxes) • Russian executives averaged $157,000 • Chinese executives $126,000 • Brazil executives $124,000 The report defined pay as total cash, which is equal to base salary plus any annualized short-term variable incentive. According to the report, "India benefits from a large tier of well educated, Englishspeaking local talent, making management pay more immune to the international market." The report also said that Executives in India can expect annual pay increases of up to 20% due to the increasing scarcity of executive talent. Rakesh Jhunjhunwala Interview Recently, Jhunjhunwala gave an interview to Mumbai Mirror. We analyze the interview below and provide our analysis where appropriate. Juhnjhunwala on the Sensex reaching 15,000: “It was just a milestone. There are so many more milestones that are to come. I am bullish on India. The markets could see periods of corrections, consolidations, when they go down. But I am not going to lose hope. Because India is in a very initial stage of economic growth. Indians are ready for global exposure. The world is still looking at India. They know that a lot of economic potential lies here – we are a large, economic superpower for the world.” India Street Analysis: India is not a superpower yet, and he is incorrect in stating as such. In fact, were it a superpower India would have much more open and transparent markets and have a much larger global trade numbers. However, we do agree that the Sensex 15,000 is just a milestone and predict that Sensex will reach 25,000 soon.

Jhunjhunwala on what he reads to stay abreast of the market: I read magazines, newspapers, etc. But definitely The Economist. That keeps me in touch with the business world. Then I read broker reports, research reports, like that. On an average, it takes me two hours daily for this – religiously. Not number-crunching. I don’t know what that is. Investment is not number-crunching. India Street Analysis: He certainly sounds like the Warren Buffet from the US. Buffet relies more on his “readings” of executives and whether a stock is over-priced or not. He doesn’t do a lot of number crunching, but reads a lot of periodicals and reports that cover the equities of interest. Jhunjhunwala appears to be a disciplined reader and makes intuitive investments based on the information he gains from the sources he quotes above. Jhunjhunwala expands on his investment philosophy: I think it’s independent thinking. It’s about patience. You’ve got to be ready for setbacks. You have to be down-toearth. The markets anyway teach you to be down-to-earth. India Street Analysis: He is being modest here and not revealing much about his true investment philosophy. You can bet after a financial set back he is researching the reasons behind the missed stock pick or economic forecast and trying to minimize those losses in the future. Jhunjhunwala on his future: Well, I hope we have capital account convertibility. Then I can replicate what I have done here all over the world. For now, I am trying to improve myself by building an organisation with capital. But I need capital account convertibility to take my money abroad. I cannot invest outside till then… I may stay someday abroad – tax-wise it’s very favourable. India Street Analysis: We could not agree more. But let’s add the ability of foreigners to invest directly into the India Stock Markets which will help the India market become truly global. The full interview can be found here Corruption in India versus the West Corruption in the less is far less than in India or China however, if you expand the definition of corruption to political contributions and quid pro quo’s corruption in the West begins to equal that of India or China. Unlike India however, powerful Europeans and Americans can be caught and thrown in jail just ask Martha Stewart, Paris Hilton, or Dennis Kozlowski. It’s very rare to see a powerful Indian executive convicted of bribery and further locked behind bars. Most of the corruption cited by international surveys deals with everyday occurrences and it isn’t good for the India economy. Police bribery, local tax evasion via bribery,

special “insider pricing” for Government land sales are all examples of corruption that takes place in India but rarely happens in the West. This is due to stricter corruption enforcement and a free press that is able to investigate without fear. Moreover, corruption in the West is ostensibly not an accepted practice thus business ethics are ingrained into Western society. India “VIP Syndrome” however allows those with the right connections to move to the front of any queue, get “sold out” tickets to important events or first dibs on special Government contracts. As Edward Luce writes in the book “In spite of Gods: the Rising Modern India”, “know who” seems to be as important as “know how” in India. He cites the example of India’s telephone industry, where it would take 2 years for most of the regular Indians to receive a telephone line while India’s VIP’s received the lines within days. Once India privatized the telephone industry, the waiting time became much less. His lesson for us: Shortages can often create favoritism and corruption. In order for India to truly be recognized as a global player with true transparency, India will have to become less corrupt. Right now it’s institutionalized and ingrained into business society (but it’s getting better). As India opens to the rest of the world and allows all of its citizens to become VIP’s corruption will become less and India society will be better off. According to the 2006 Transparency International annual corruption perception index, the US ranked 20th and India came in at 70th. Both countries don’t come off well, but India needs to improve in order to be taken seriously. The Editor Recent Editor Articles

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