Executive takehomes touched a new peak, fuelled by the stock market's dizzy ascent and companies' hunt for star talent, find Deepak B Korgaonkar & Anand Pandey
The Germans have a word that describes the feeling of delight people have at someone else’s misfortune: Schadenfreude (pronounced shahd-n-froi-duh). There, however, is no recognised word that describes the pleasure one gets at someone else’s good fortune. An explainable reason is that such a feeling is too uncommon to be lexicalised. Then, what do we get in reading best-paid executive reports such as this one? During better times, it could make for inspiration, even for a rush of envy. In today’s times, a common reaction would be perhaps that of consolation — at least someone out there is still making good money. By that measure, a look at the compensation figures of FY08’s best-paid executive directors should be soothing to the readers.(Click here for CEO salary table)
The Billionaire Club review of compensation for managers of the rank of executive directors and above finds a median pay increase of 41 per cent in 2007-08. To put the impressive growth in perspective, senior executive pay had risen by 31 per cent in 2006-07 — widely regarded as a boom period for the Indian economy.
The number of executive directors earning compensation of more than Rs 1 crore also saw a sharp increase in FY08. During the year 2006-07, the total number of executive directors earning Rs 1 crore or more was 511. In 2007-08, 401 more joined the party, taking the total to an impressive 912. In contrast, only 134 new executive directors had made it to this stratospheric club last year.
Compared to the small number of executive directors (94) earning a crore or more per annum in 2002-03, this year’s tally also gives an idea of the robust growth that India Inc has witnessed in the last five years. Collectively, the 912 best-paid executives took home Rs 2,537 crore from salaries, commissions and perquisites (excluding stock options and deferred pay), compared with Rs 1,447 crore the year before. Of these, 453 were the promoters of their respective companies (total pay: 1,615 crore) while 459 were non-owner directors (total pay: Rs 922 crore).
For the second year in a row, Reliance ADAG Group chairman Anil Ambani outdid his elder brother, Reliance Industries chairman Mukesh Ambani. Anil took home a total pay package of Rs 47.98 crore, while Mukesh received Rs 44.02 crore.
Compensation packages of 176 more than doubled over the previous year. Malvinder Mohan Singh, CEO and managing director of Ranbaxy Laboratories; Gautam Adani, chairman of Adani Enterprises; Rohtas Goel, chairman and managing director of Omaxe, and Ratan Jindal, vice-chairman and managing director of JSL, were among these.
Moreover, the number of executives who received increments in the range of 50- 100 per cent was 104. Financial year 2007 was not bad either, when salaries of 104 executives had doubled and 82 had received increments in the 50-100 per cent range. And FY07’s best-paid frat was almost half the size of the FY08 group.
HEADY SENSEX, GOOD PAY
The dizzy climb of the stock market that began in 2006-07 had a ballooning effect on CEO pay packets in 2007-08, say experts. Sampath Shetty, vice-president, permanent staffing, TeamLease Services says that since CEO salaries are usually calculated based on increase in the market capitalisation in the preceding year, compensation levels for 2008 fiscal reflect stock market gains of the year before. Along with increasing market caps, a robust Sensex also attracted many IPOs during the better part of FY08 — contributing to the pay hike.
Ma Foi Management Consultants CEO and director E Balaji points out that there is a strong link between CEO compensation and the number of IPOs introduced in a particular period. An increase in the number of new companies leads to a shortfall of talent which fuels compensation levels. “Considering the number of new companies set up in the last few years, the run on quality talent was huge,” affirms Ashutosh Khanna, client partner, Korn/Ferry International.
In fact, the list of crorepati CEOs could be much longer in this year’s report — some HR consultants say it could be more than double at somewhere between 1,200 and 1,400 people — if one included senior executives from unlisted international firms, management consultancies, foreign banks, investment banks, retail companies and sundry others.
Experts says that the companies’ desire to attract star talent also contributed to the compensation windfall. “Most Indian companies have been obsessively paying more than market standards to get star CEOs. They believe that everything revolves around the CEO and hence are ready to pay a price for good leadership,” says Shetty.
In contrast, average staff salaries rose moderately at 26 per cent during this period, which brings into light the CEO compensation debate that took centre stage after the September Wall Street carnage. On this issue, most consultants say that high CEO compensation is justified as it compensates for the huge risk a CEO takes in leading from the front. “CEO compensation may seem disproportionate in terms of scale or increment. However, the axe for not meeting company goals falls on the leadership rather than the middle or junior staff. It is only fair the CEO gets a higher increment,” opines Khanna.
Balaji says that at a time when Indian companies are still debating whether a CEO should get 20 or 30 times the salary of an entry-level employee, US companies are paying 150 to 200 times entry-level salaries. “The CEO pay levels in India are well within sensible limits,” he adds. Vindicating his observation is the fact that the director compensation share in India is 2.7 per cent of net profits — well below the 5 per cent limit set by the company law board.
TECTONIC SHIFT
Predictably, sectors that witnessed the fastest growth in 2007-08 added the biggest numbers of highly-paid executives to the elite club. Ninety best paid executives belonged to construction companies. As many as 74 hailed from the pharmaceutical sector, 64 from IT and 39 from cement companies.
Construction and energy added a big number of starters to the one-crore bracket. Some of the new entrants were M R Jaishankar (Rs 7.59 crore), chairman and managing director, Brigade Enterprises; Gita Shankar (Rs 7.58 crore), whole-time director, Brigade Enterprises; Rahul Dhir (Rs 6.83 crore), managing director and chief executive officer, Cairn India, and B G Raghupathy (Rs 6.59 crore), chairman and managing director, BGR Energy.
Bharti Airtel had the highest number of (15) of senior executives drawing Rs 1 crore-plus salary. HDFC Bank had 14, Dr Reddy’s Laboratories had 11 and Lupin, Ranbaxy Laboratories and Tech Mahindra had 10. Construction and real estate, sectors that led the pack in 2007-08, are likely to see sluggish growth in 2008-09, says Balaji. Healthcare, life sciences, pharmaceuticals and FMCG will do well this fiscal, he says. Khanna says that sectors which will be able to retain top talent will continue to show healthy growth. Despite the anticipated sobriety in salary raises, telecom, consumer goods and life sciences will continue to see healthy increments.
Shetty sees a paradigm shift in the compensation structure of executive directors — CXOs in particular — across all sectors. He says that with new-age businesses such as telecom, BPOs and retail gaining prominence, the CXO compensation structure is moving towards a ‘pay for performance’ model, which shall be closely linked to determinable metrics such as turnover and profits. According to a recent Capitaline, ICICIdirect.com research report, corporate profitability turned negative during the fourth quarter of FY08. It sank even deeper into the red by the second quarter of FY09, posting a negative growth rate of 31 per cent.
With the first half of FY09 in red, the second half expected to be as tough (if not more) and executive pay predicted to hinge more on the performance variable, there is a chance that readers of the next annual pay report will go through a whole range of emotions — except that of consolation.
