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MUMBAI: A subdued economy has not only hit the man on the street but also top execs in the corner office by slowing their entry into the million-dollar salary club.
According to a study by EMA Partners, commissioned byTOI, only one executive was added to their list of CEOs who took home a million dollars (about Rs 6.5 crore) in compensation in 2016-17. Global executive search firm EMA Partners tracks the earnings of CEOs/ CXOs across top 200 listed companies in India for TOI. Over the last few years, there has been a steady rise in the membership of the elite club — from 94 in 2013-14 to 100 in FY15 to 119 in FY16. After growing at 6% and 19% respectively in the previous two fiscals, the pace has slowed in 2016-17 with the club expanding by just one more member to 120. The study does not include stock options and, thus, several CEOs who took home a fatter package on account of such perquisites do not figure in the list.
The total compensation of the elite club has come down from Rs 2,083 crore in 2016 to Rs 1,979 crore in 2017. It stood at Rs 1,528 crore in 2015. The average compensation (total sum of compensation divided by the number of executives in the million-dollar club), too, has fallen from Rs 17.5 crore in 2016 to Rs 16.5 crore in 2017. In 2015, the average compensation was around Rs 15 crore. According to the study, the average compensation is lower in 2017 as only 51 executives got over 10% increase in salary against 72 in 2015-2016.
What are the reasons behind the muted membership rise in the elite club when the global growth outlook has improved and the India story remains intact? “The rise in compensation depends on several factors, including business growth, availability and competition for talent, internal leadership pipeline and, above all, the business impact. The core/manufacturing sector has gone through a bit of stress during the past year and this reflects in the overall muted compensation trend in that period,” said K Sudarshan, regional managing partner —Asia, EMA Partners. The overall CEO compensation is also a function of the profitability of the enterprise and the commissions/incentives paid out in lieu, he added. Sudarshan, however, sees this as a temporary phenomenon as growth and profitability numbers are kicking in this fiscal and he expects compensation to also keep pace with it.
Moreover, it’s a myth to believe that CEO compensation necessarily goes up every year, says Santrupt Misra, CEO, Carbon Black Business and director, group HR, Aditya Birla Group. “Some years may see a strong rise, while others may witness muted growth. The growth of the economy too can be a factor in the rate of compensation growth. Let’s also not forget that boards and shareholders nowadays keep a close watch on the CEO compensation, making it more aligned to the performance of the company.”
The study also establishes the trend of professional CEOs outnumbering promoter CEOs. Among the 120 CEOs in the million-dollar salary club, 61 are professional CEOs and 59 are promoters. Sudarshan said, “As we have seen, professional CEOs will continue to become more prominent and the tribe is set to expand as Indian businesses grow in scale and complexity.”
Leading the list of million-dollar salary CEOs, once again, are the Marans of Sun Group — Kalanithi Maran and Kavery Kalanithi — who drew a compensation of about Rs 78 crore each in 2016-17 (see graph). Former Infosys CEO Vishal Sikka, who catapulted into the top 10 of the club last year with a compensation of Rs 49 crore, is down to rank 54 this year with a Rs 12-crore package. Among the professional CEOs who marked their entry into the club this time are Guenter Butschek, CEO MD, Tata Motors (around Rs 16 crore), Suresh Narayanan, CMD, Nestle India (Rs 9 crore) and Chanda Kochhar, MD CEO, ICICI Bank (about Rs 8 crore). Among those who exited the club are Gautam Singhania, CMD, Raymond (approximately Rs 6 crore) and Ajit Gulabchand, CMD, HCC (around Rs 4 crore). T K Kurien, who retired as executive vice-chairman of Wipro on January 31, 2017, had a total compensation of Rs 9.7 crore from April 1, 2016 till the time he superannuated. However, he did not make it to the list this year because his compensation includes a stock option component of around Rs 5 crore.
AM Naik, who retired as executive chairman of Larsen Toubro in September 2017, on the other hand, took home a retirement benefit component of Rs 38 crore (which includes encashment of accumulated past service leave of Rs 32 crore) which boosted his total income to about Rs 60 crore (excluding stock option perquisites), aiding his inclusion in the million-dollar club this year. Naik’s basic salary was just around Rs 3 crore in fiscal year 2017.
Most founders earn more from equity appreciation than salary and requisite commissions. According to the study, Mukesh Ambani’s compensation this year remained the same as that in 2015-16 at Rs 15 crore, while Anand Mahindra’s package rose to around Rs 8 crore from Rs 7 crore. Kumar Mangalam Birla figured in the top 20 with a compensation of Rs 38 crore, which is down from Rs 43 crore last year.
Average CEO salary in India is said to be lower than comparable companies in the West in absolute terms. “Many Indians are succeeding as CEOs of global companies, giving credence to country’s talent and ability. The question to ask would be whether Indian CEOs leading global businesses will be compensated on a par with colleagues in the West and at what stage of economic growth are we likely to see it happening,” Misra said. He believes compensation issues, particularly the executive CEO package, are often oversimplified in popular discourse.