Certainly the coveted club of Nifty 100 directors earns more ??1 crore in a year has gone down as some have taken pay cuts in solidarity with staff members. But the drop, the first in years, is marginal: 293 directors win ??1 crore in 2020-21, up from 297, according to Mint calculations.
Some industry experts attribute the inequity in part to the additional responsibility that top executives have taken on in leading their businesses through the unprecedented crisis. But as recent confrontations at Eicher Motors and Balaji Telefilms show, shareholders are not too happy, rejecting several resolutions on board compensation in recent months.
âWith the exception of a few particularly affected sectors, many companies have been successful in going digital, reviewing their operations and supply chains and reducing costs,â said Sonal Agrawal, Managing Partner at Accord India , a C-suite executive search firm. âSome who have successfully overcome volatility are rewarded for it. “
The relentless rally in the stock markets since last year may also have contributed to the rise in wages, experts said, citing the growing prevalence of performance shares, employee share ownership plans (ESOPs) and stock options. restricted.
As in the rest of the world, the pay gap between senior executives and the average employee in Indian listed companies has only widened over the years. But a year of layoffs may not be the best for that gap to widen further, especially for companies that have been unable to avoid financial difficulties, some analysts believe.
In 2020-2021, Nifty 100 CEOs achieved a median ??7 crore, about 100 times the median salary of their employees. Not all of them could justify their salary increase by an increase in their company’s income. For some, the pay ratio was over 1,000 times.
The analysis covered 85 companies for which data was available.
Pranav Haldea, Managing Director of PRIME Database, said that while it is right that key business leaders are compensated for going through last year’s plight, it should not be “at the cost of those rewards that do not do not benefit the rest of the organization either. “.
Express your concerns
No wonder there are signs of dissent. Shareholders are increasingly irritated by the high salaries of senior executives. Example: In 2018-19, at least 66 companies listed on the NSE saw resolutions relating to board compensation rejected by more than 20% of institutional investors. In 2020-2021, that number rose to 97, according to the analysis.
Shriram Subramanian, founder and CEO of InGovern, a proxy consulting firm, expects compensation to become a bone of contention between companies and shareholders for many years to come. Companies, he said, should have more detailed information on compensation and should engage more with shareholders to understand their perspective on the same.
While shareholders in some cases are dismounting, there is still some way to go. In some cases, companies are considering salary increases after factoring in the pain and cost of replacing high-performing senior executives, Agrawal said. Several boards of directors made such increases last year while they could afford it.
Companies could boost the confidence of their shareholders if they link CEO earnings more closely to company performance. But wage practices in India are not yet comparable to those in the West. Variable pay and long-term incentives – elements of compensation tied to company performance – account for 87% for U.S. CEOs, but so do just over half in India, according to one. 2020-2021 survey conducted by Aon, a professional services company.
Such a link between wages and trade measures is gaining ground. As large Indian companies go global, they may revisit their executive recruitment practices, ultimately bringing compensation models closer to global practices, said Pothen Jacob, head of executive compensation and governance at Aon.
Boards of directors and compensation committees have become responsive to regulators and shareholder activism while adopting a medium and long-term view of executive compensation. However, as the inequity of the pandemic year shows, they may need to do more to redress the imbalance with the rest of the organization.
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