Pay of CXOs, other KMP rose 3.9% to Rs 8,304 cr in FY24, least in 4 years

This can be attributed to increased share of ESOPs in remuneration packages

Growth in executive compensation at India’s leading listed companies decelerated in 2023-24 after two years of strong gains. The cumulative remuneration for key managerial personnel (KMP) or top management of BSE 200 companies rose by 3.9 per cent year-on-year (Y-o-Y) to Rs 8,304 crore in FY24, compared with Rs 7,990 crore a year earlier — marking the smallest uptick in the past four years. This contrasts sharply with the 27.1 per cent growth in FY23 and the 38.8 per cent surge in FY22, according to data compiled by Business Standard Research Bureau.

There was a slowdown in growth of executive compensation despite a strong rebound in corporate earnings last financial year. The combined net profit of 151 companies sampled within the BSE 200 index climbed 22.3 per cent Y-o-Y to Rs 6.07 trillion in FY24, compared to Rs 4.96 trillion in FY23. This stands in contrast to a modest 9.3 per cent earnings growth in FY23.

The deceleration in executive remuneration helped ease the burden on corporate profitability. KMP compensation cumulatively accounted for 1.37 per cent of corporate profits in FY24, down from 1.61 per cent the previous year and a high of 2.87 per cent in FY20.

In fact, the ratio of KMP remuneration to corporate earnings in FY24 was the lowest in at least seven years. During FY19 to FY24, KMP compensation grew at a compound annual rate of 14.41 per cent, compared with an 18 per cent compound annual growth rate in corporate earnings.

A significant portion of executive pay is variable in the form of share in profits and commissions, making it sensitive to earnings performance. Deloitte India’s Executive Performance and Rewards Survey 2024 revealed that over 50 per cent of target compensation is pay-at-risk, with professional CEOs seeing 57 per cent of their compensation tied to performance compared with 47 per cent for promoter CEOs. According to the survey, average CEO compensation now stands at Rs 13.8 crore, representing a 40 per cent increase compared with pre-Covid-19 levels.

According to workforce consultant Adecco India, the slowdown in KMP compensation growth can be attributed to the increasing share of employee stock ownership plans (ESOPs) in overall CXO pay packages. “An increasing number of CXOs have taken compensation hikes in the form of ESOPs last year, rather than the cash component. This optically lowers the compensation growth,” noted Karthikeyan K, director of permanent recruitment, Adecco India. Its data suggests that CXO compensation, excluding ESOPs, grew by 6 per cent in FY24.

However, some experts argue that top management’s overall compensation remains on a rapid upward trajectory. "Anecdotal evidence suggests no real slowdown in CXO and promoter compensation, which continues to track earnings growth. The overall figures may be skewed by significant changes at a few companies,” said Amit Tandon, founder and managing director of Institutional Investor Advisory Services India Limited (IiAS), a proxy advisory firm.

Notably, executive compensation growth in FY24 lagged the rise in overall employee expenses. The combined salary and wage bill of the sampled BSE 200 companies rose by 12.9 per cent Y-o-Y to Rs 5.36 trillion in FY24, up from Rs 4.81 trillion the previous year.

Analysts, however, caution against drawing direct comparisons between wage bill growth and KMP remuneration rise, as the number of KMP tends to remain stable over the short to medium term, while overall employee numbers continue to vary on a Y-o-Y basis. This means that while the increase in KMP compensation is driven primarily by higher pay for individuals, a company's wage bill can expand even if individual employee salaries remain stagnant, due to growth in workforce size.

For example, total employee count of the 151 BSE 200 companies in the sample increased by 4.8 per cent Y-o-Y in FY24, reaching 5.1 million. Over the longer term, however, executive compensation has outpaced wage bill growth. Over the past five years, total salary and wage bill for these companies has grown at a compound annual rate of 11.4 per cent, trailing KMP remuneration's CAGR by 150 basis points.

KMP are responsible for key decisions and efficient operations within companies. They perform roles such as CEO, CFO, company secretary, and executive directors. The overall compensation figures in this analysis also include remuneration paid to independent directors, who do not hold executive positions. The study focuses on data from BSE 200 index companies, excluding government-owned entities.