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CEO pay hikes get leaner as slump makes companies sweat

, ET Bureau|
Oct 17, 2017, 01.21 AM IST
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However, tThe number of MDs and CEOs in the list of top 50 paid, non-independent directors climbed to 21, highest in 4 years.
MUMBAI: It's not just the rank and file, CEOs too felt a salary pinch in FY17. Average pay rises of India Inc's managing directors and CEOs halved to 10 per cent from 21 per cent in the previous year, reflecting a slowdown in certain sectors.

Apart from the disruption related to demonetisation, experts said a combination of factors dented the payout, including the growing effectiveness of, and stricter vigil by, nomination and remuneration committees and stronger linkage of salary with performance.

The average pay of MDs and CEOs of companies listed on the National Stock Exchange rose to Rs 2.46 crore in FY17 from Rs 2.23 crore a year earlier, according to a Prime Database survey. A total of Rs 3,680 crore was paid to 1,493 CEOs and MDs in 1,255 firms last year compared with Rs 3,309 crore paid to 1,484 top bosses in 1,219 firms in FY16.

The amount includes the remuneration paid to executive directors — promoters and non-promoters. Compensation consisted of basic pay, perquisites, variable pay and commissions and excluded employee stock options.

The data is based on 1,518 out of 1,592 NSE-listed companies for which annual reports were available on September 25.

"A large part of the compensation of the top management is linked to performance — stock options, company's profitability, and individual's performance," said Harsh Goenka, chairman of RPG Enterprises. "Last year, many industries had performed indifferently. That could have reflected in the lowering of average salary increases."

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Prime Database managing director Pranav Haldea said, "It is a reflection in terms of the performance of companies and slowdown in revenue growth in some sectors."

The total remuneration paid to executive directors across 1,476 companies in FY17 was Rs 6,496.41 crore, up from Rs 5,991.98 crore in FY16, the data showed.

"There are some sectors like retail, consumer, industrial, manufacturing, etc, where top-level compensation has taken a hit due to overall slower company performance after demonetisation," said Navnit Singh, chairman and managing director of India for leading global HR consulting and executive search firm Korn/Ferry International.

"There are stronger linkages between pay and performance," said Arvind Usretay, director at Willis Towers Watson India. Typically, up to 50-60 per cent of the salary of a CEO or MD is variable and linked to company performance.

Growth estimates have been downgraded for the current financial year following GDP slowing to a three-year low in the June quarter, which could mean the salary trend persisting.

However, the economy is expected to stage a recovery subsequently after shaking off the effects of last November's demonetisation and the July 1 rollout of the goods and services tax (GST).

The number of professional MDs and CEOs in the list of top 50 paid, non-independent directors climbed to 21, the highest in four years, according to the Prime Database research.

Professional or non-promoter MDs and CEOs got an average 9 per cent increase in salary in FY17 versus a 22 per cent increase in FY16. In FY14, there were 12 professionals in the top 50 list, in FY15 there were 15 and in FY16 there were 18.

Experts said the nomination and remuneration committees (NRCs) of boards are getting stricter about performance.

"Remuneration committees of boards are seeking more data to enable informed decisions around KRA (key result area) setting and performance-linked remuneration for top executives," Usretay said.

"Many a time promoters used to indiscriminately reward themselves — a practice that is getting curbed by the growing effectiveness of the nomination and remuneration committee," Goenka said.

Companies sometimes tend to give a substantial jump in two-year blocks and after a 20 per cent increase a year ago, they might have tempered it down, said experts.

"Last year was a euphoria year hoping that the market will pick up and companies were generous in doling out hikes. People got significant payouts in variable component due to economy and stock market doing well.

That effect has moderated," said Debabrat Mishra, partner consulting at professional services firm Deloitte.
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