Understanding executive pay

We know of the tremendous focus on top executive compensation in the US - the pay details of top executives are shared through proxy statements, which are publicly accessible documents. When we look at some of the public documents in India for an organisation, while there is some degree of information, there are transparency gaps that need to be addressed.The blog post is not about solutions, but more about the challenges that we face in this space in India. Once the challenges are clear, organisations need to focus on addressing the ones that present serious concerns for it.

n Complex and multidimensional pay structures: Given that our pay structure consists of additional non-financial elements that get defined broadly under perquisites & benefits, there is a clear need to be able to understand executive compensation in India in its entirety. Several elements of pay especially at top executive levels are perceived as entitlements due to the hierarchy. Due to this perception, organisations fail to attach monetary value to them in a structured manner.

n Absence of quality benchmark data: There is a limitation in terms of quality benchmark data which can give a comprehensive insight into executive pay in India. The data so far has been sketchy and while there have been some studies by consulting firms, they have been intermittent. Therefore, compensation practitioners working in this space, do not get a detailed perspective of how top executives are paid in organisations of a certain revenue size / geographic spread and so on. Generic data points might give a macro level picture but they do not give the information that can enable decision making.

n Identification of relevant performance measures: While we understand that there are many types of approaches that can be used to measure performance at the top executive level, the identification of relevant metrics coupled with them being flexible to some extent is a challenge. This is because the business environment that impacts organisational performance has become far more dynamic than it was in the past and the metrics should reflect that, at least for the executives since firstly, their individual performance impacts the overall company performance and second their compensation usually has a higher link to these metrics than for the other employees. Therefore, the metrics that connect up with the pay at risk, should be representative of the business scenario of the present and that anticipated for the future.

The author is Simran Oberoi, research and content lead, Interweave Consulting. Re-printed with permission.
Link: https://www.linkedin.com/pulse/ article/20141007092459-23076946-executive-compensation?trk=prof-post