It's a variable world when it comes to indian ce os' pay

1. It's a Variable World
When it comes to Indian
CEOs' Pay
More than half of honchos' salaries being linked to
performance

2. Contd…
India Inc's big bosses are losing a compensation comfort they enjoyed vis-a-
vis chief executives in other major economies -more than half of Indian CEOs'
pay will soon be variable, linked to performance. This is a big change. Just
five years ago, less than a third of Indian CEOs' pay was variable. Data from a
CEO compensation survey of 380 companies in India show that more than
half of the CEO pay is tied to performance. This means that just about 50% or
less of the CEO salary is fixed, and the remaining is performance-linked and
distributed in annual bonus and long-term incentives.
And the fixed pay component of CEOs is likely to shrink further. If global
compensation structures are any indication, CEO compensation in India will
get increasingly geared towards results in the coming years. The executive
compensation survey 2015-16, shared exclusively with ET, was conducted by
Aon Hewitt across eight industries.

3. Contd…
One of the leading factors for high percentage of pay for performance
is pressure from shareholders, which has prompted companies to tie a
greater percentage of their CEO compensation to outcomes and
results.
“CEO compensation is outcome-driven. Shareholders need to see there
is connection between compensation and outcome. As CEO
compensation increases so does percentage of performance-linked pay
,“ said Anandorup Ghose, partner, Aon Hewitt.
Fortune 250 companies have almost 70% allocation to longterm
incentives, according to compensation experts. Globally, pay for
performance can account up to 85% of CEO salary.

4. Contd…
Listed companies have higher proportion of variable pay and long-term
incentives compared with non-listed counterparts, reveals the survey. Close
to 60% of CEO salary in listed companies is at risk. “Listed organisations are
more aggressive in pay for performance, and these would also pay a chunk of
CEO salary in ESOPs (employee stock option plans). The upside for listed
companies is that markets are funding the CEO compensation,“ Ghose adds.
Compensation experts point out that the promoters who were earlier very
conservative in sharing gains or ownership with professional CEOs are
enabling long-term incentive and wealth creation to attract and retain best
talent -senior executives from multinational corporations. Professionals are
too welcoming this change, as they consider it fair that companies structure
compensation in a way where they have potential to earn more if they
contribute to the growth of the company.

5. SENSE OF OWNERSHIP
“Companies are looking for professionals who come with a sense of
ownership. The best way to demonstrate that is if a professional is willing to
have a major part of hisher compensation come through long-term
incentives,“ says Pallavi Kathuria, who leads Asia-Pacific technology practice
for leadership advisory firm Egon Zehnder.
Across sectors, the `pay at risk' is highest in the financial services, followed
by services sector, according to the survey.
However, the quantum of variable pay is determined less by nature of the
industry and more by the impact on the business in a particular industry of
variables that are either in the control of the executive or doors that are
beyond hisher control.In sectors such as infrastructure, large capital goods
and mining industries -where the intervention of the government policies
and regulation is quite high -the total proportion of variable pay is on the
lower side between 20% and 30%, another compensation expert said.

6. Contd…
So what does the future hold?
“We may see a little bit of stabilisation in the structure from here on in India.
However, as the companies grow in size and if western markets are any
example to go by, we believe that greater amount will be allocated to long-
term incentives in future,“ says Anubhav Gupta, solution head (executive
compensation), Aon Hewitt.
In terms of salary increment at CEO and CXO levels, the survey shows a
marginal drop in fixed pay increase to 9.5% in 2015-16 from 9.7% last year.
According to the survey, stock options continue to be most dominant long-
term incentive being used by companies. Executive compensation survey
2015-16 conducted by Aon Hewitt saw participation from 380 companies
across eight industries. It was conducted between July 2015 and November
2015.

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