New Delhi: Indian companies are likely to give more than 10 percent pay hike to their top executives this year amid hopes of revival in economic growth and business prospects, says a study. Global management consultancy Hay Group's study released today said compensation of Chief Executive Officers (CEOs) and Managing Directors (MDs) are projected to increase by 10 percent this year, higher than 9 percent hike in 2013. Top executives, a part of the senior management team, are set to see a 10.4 percent increase in their pay, up from 9.5 percent seen last year.
"This year, we see a return to double-digit pay increases for CEOs and their top teams, after a dip last year... The main reason for the trend is that companies expect a revival in economic growth post general elections," Sridhar Ganesan, Country Head for Hay Group India, told PTI.
Despite a very conservative economic outlook, organisations believe that this year's general elections would give a spurt to their business prospects, he said. Hay Group said CEOs in India earn "78 times the salary of an entry-level professional" and the ratio has been consistently on the rise. According to Ganesan, external recruitment of CEOs has grown in both number and intensity.
The spotlight falls on the need for robustness in the senior team's succession management processes, to make the internal talent pool relevant for leadership succession," he noted.
This pay ratio is higher for FMCG and real estate sectors, indicative of the CEO movements that have taken place in the last few years. The study -- 'Top Executive Compensation Report 2013-2014' -- is based on an analysis of 2,524 jobs spread across 176 organisations. All information available till December 1, 2013 was analysed.
Interestingly, the study showed that CEO pay at Indian companies is less correlated to performance, since a large part is skewed towards guaranteed pay.
Such a trend is unlike mature markets, such as the U.S. and Europe, where there is greater alignment of CEO pay to business performance and shareholders.
"In emerging economies, of which India is a part, such alignment is lacking. As result, a majority of the CEO's compensation is guaranteed, irrespective of the shareholder value created," Ganesan said.
Further, the study found that CEO salaries are 2.9 times of core roles, and 2.8 times that of enabler roles.
Posts such as Head of Sales & Marketing, Manufacturing/Operations and Business Heads are considered as core roles while Head of HR, Chief Information Officer and R&D, among others are seen as enabler roles.
The study said long-term incentives (LTIs) are yet to become an accepted reality in Indian companies, with only a quarter having such plans in place. "The reason that Indian-headquartered companies are yet to adopt LTIs is because many amongst them are family-owned businesses that are hesitant to divest their equity. "Couple this with a weak overall corporate governance climate, and a resistance from the CEOs themselves to switch from cash-based compensation to equity-based compensation - and you find a slow uptake," Ganesan said.
Out of the 44 companies that indicated using LTIs for their top teams, around 58 percent were MNCs (Multi National Companies) which shows their tendency to cascade global reward practices to their country subsidiaries.
More often, organisations in India use LTIs as a retention tool, in place of using it to link executive compensation to business performance and shareholder value.
"With an overwhelming support for the time-based, discounted stock options or ESOPs, and restricted shares, there is a clear indication that Indian companies have a long way in terms of driving a pay-for-performance culture from a long-term perspective," Hay Group said.
Read More:
Walmart Seeks More Clarity On FDI Rules For Multi-Brand Entry
BRICS On Rebound Mode; India To Clock Steady GDP In Next 3 Yrs
