Profit sharing by the board members
Profit sharing refers to incentive plans based on the profits earned by the companies, apart from the regular salaries and incentives. When the company is being traded publicly, this is based on the shared and stocks allocated to an individual. It’s provided on the basis of some predefined rule that determines how much a board member is going to get and how much would be kept by the company.
Such kind of profit sharing entitles a board member to have a certain stake in the profitability of the company. This way a model of corporate governance emerges, where shareholders, management and board of directors, work together to ensure that each investor is protected against the selfish interests of the management and get their due share in the profits. So, certain laws are framed and polices are made, so that the assets of the company can be managed properly.
The best kind of corporate governance is that wherein the management is just a long-term investor and they cannot monopolize or seize a lion’s share in the profits resulting from the investment made by the creditors and shareholders and contribution made by the employees.
Profit sharing at Procter & Gamble
Procter and Gamble is an organization with a difference where transparency is respected and management acts as just a long term investor. It dates back to 1887, when its founder William Cooper Procter initiated a profit-sharing scheme for the internal employees. Later on, in the beginning of twentieth century, he linked the profit sharing to P & G stock. His aim was to make the employees, the stockholders of the company and link their financial interests more closely with the company.
Senior executives and board members are encouraged to own shares of company stock, so that the financial interests of the directors, top executives and management are interlinked. According to a survey by U.S. Chamber of Commerce, around 25% of the companies in the US have some or the other kind of profit sharing arrangement. These contribution programs cover around 63 million American workers.
Re 1 salary accepted by Narayana Murthy of Infosys on his rejoining Infosys
Narayana Murthy rejoined Infosys in June 2013 to reincarnate the dwindling business of the software giant overseas. Surprisingly, he agreed to take over as chairman of Infosys, the company he had founded himself, on a salary of just Re 1. Though, it’s not something new, as many tech leaders in the Silicon Valley such as late Steve Jobs, Larry Page and Sergey Brin of Google, Hewlett Packard’s Meg Whitman, Fossil CEO Kosta Kartsotis and Mark Zuckerberg of Facebook are examples of CEOs with an annual salary of $1.
But, they are well compensated in terms of stock ownership of the company, which is way beyond any salary. Some people term it as a far more shrewd and overconfident act as the leaders are often greedy and control a huge share of stocks resulting in hefty paychecks. Rohan Murthy, his son owns more shares in Infosys than his father and mother combined.
Vikram Pandit, the ex-CEO of Citigroup
Citigroup’s Vikram Pandit accepted a salary of $1, when Citigroup was not performing well during the peak of credit crunch of 2008, and it was a sort of punishment for the top executive. On 11 February 2009, he admitted that after the credit crunch resulting from mortgage based securities and collateralized debt obligation, he declared to the board of directors of the Citigroup that his salary would be $1 per year with zero bonus till Citigroup turns profitable again. In January 2011, his annual salary was raised to $1.75 million for the profitability growth registered under his leadership.