Top Executives Compensation Report 2012-13


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Companies placing 3 times more rewards value on the CEO’s role compared to top executive team.

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Top Executives Compensation Report 2012-13

  1. 1. News Release Companies placing 3 times more rewards value on the CEO’s role compared to top executive team Executive Compensation cannot have a one-size-fits-all, corporate-governance driven approach that acts as a straitjacket for CEO pay  Executive compensation expected to rise moderately by 9 per cent in the coming year  Markets, strategy, culture, and ambitions the four real drivers of modern-day CEO pay  Increasing external recruitment of CEOs in evolving sectors such as Retail and Basic Resources. “Ready-made CEOs” as the mantra for success also means higher compensation and larger differentiation between CEOs’ and Top Executives’ pay  30 to 44 per cent of the overall executive compensation mix comprises incentives – both short - term and long – termNew Delhi/Mumbai, December 4, 2012: Hay Group, global management consultancy, today released theannual Top Executives Compensation Report 2012-13, revealing that the compensation of CEOs and theirtop executives is set to increase by a modest 9 per cent & 9.4 per cent respectively in the coming year.This exhibits a dip from the double-digit growth witnessed in previous years.The Top Executive Compensation Report 2012-2013 features insights from about 158 organizations acrossthe sectors of Auto, Chemicals, Basic Resources, Oil and Gas, FMCG, Retail, Construction and Materials,Telecommunication, Utilities, Industrial Goods, and Transportation. It is designed to enable organizationsto understand prevailing compensation practices and trends in India.Sridhar Ganesan, Rewards Practice Leader, Hay Group India explains, “Hay Group research has foundthat markets, strategy, culture, and ambitions are the four real drivers of modern-day executivecompensation. This is important to keep in mind as data analytics on executive compensation have to beinterpreted beyond just the stated numbers”.Statistical analysis between the Hay Level (proxy for job contour in terms of scope, scale, size, complexity,etc.) and Total Cost to Company (CTC) found a co-relation of 0.26 – indicating that other factors, besidesjust the organization’s contour affect CEO compensation.Sridhar qualifies, “CEO pay can be contextualized into 4 potential context clusters – the Carers, theContractors, the Cultivators, and the Fundamentalists. The Carers are companies that operate in anenvironment of social capitalism, while the Contractors have a clear focus on extracting business valuefrom contracts and terminating them in case of failure. On the other hand, the Cultivators have the abilityto spin a compelling story and inspiring investors and employees with their energy to take risks, while theFundamentalists believe in an environment of continuous innovation without compromising on thecompany’s identity and cultural strengths.Adding further, he said, “Tata Group’s approach is of a Carer – where the organization uses social andenvironmental consciousness to create a powerful employee and customer brand – thus the CEO pay will 1
  2. 2. News Releasereflect the organization’s long-term ideals. On the other hand, current CEOs of online portals such asFlipkart and Jabong mark the Cultivator approach, reflecting dynamism and highly leveraged payoutnorms.” The four approaches are explained further in Table 1.Table 1: Modern-day approaches to executive compensationThe Carers “Company exists to boost the community and the economy”The Contractors “I know the individual who can”The Cultivators “Go big or go home”The Fundamentalists “Grow the new in the presence of the old”The report also finds companies placing a much higher value on the role of the CEO for achieving overallbusiness results as compared to the top management team – CEOs are paid 3 times more than all othersenior executives. This multiplier goes up to more than 4 in industries such as Basic Resources and Retail,while it falls below the average in industries such as Transport and Logistics, and Construction andMaterials, as showed in Tables 2 and 3.Tables 2 and 3 CEO vs. Other Executive Positions 4.6 4.4 5.0 3.0 3.3 3.1 2.6 2.8 2.8 2.0 2.0 2.0Sridhar Ganesan, Rewards Practice Leader, Hay Group India analyzes, “Impatience for business resultshas lead to recruitment of ‘Ready-made CEOs’ and is one of the reasons for variance in the compensationmultiplier across sectors. Sectors with a high multiplier, such as retail, are still evolving in terms ofbusiness model and readily-available talent – so external recruitment of CEOs has become very prevalent.These CEOs who are recruited externally at current market rates and realities will drive the multiplier upvis-à-vis internally grown incumbents. These sectors are looking at “Ready-made CEOs” as the mantra forsuccess.” 2
  3. 3. News ReleaseAnother striking feature of the findings is the deep-rooted preference for leveraged pay or pay forperformance in the overall compensation philosophy – for the top team executives including the CEO. 30to 44 per cent of the overall compensation mix, for the CEO and the top team, comprises incentives.Corporate India is addressing salary increases by moving higher parts of the increments into pay forperformance.The report also finds variable pay, as a percentage of CTC (excluding Long-Term Incentives or LTI), to bethe highest in the Retail sector at 29 per cent, followed by Utilities at 26 per cent. This is depicted in Table4.Table 4 Utilities 26% Transportation and Logistics 20% Telecommunications 25% Retail 29% Oil & Gas 24% Industrial Goods 19% FMCG 22% Diversified 24% Construction & Materials 19% Chemicals 17% Basic Resources 20% Auto 22% 0% 5% 10% 15% 20% 25% 30% CEO-Variable Pay as percentage of CTC (without LTI)Covering 158 organizations in India across the sectors of Auto, Chemicals, Basic Resources, Oil and Gas,FMCG, Retail, Construction and Materials, Telecommunication, Utilities, Industrial Goods andTransportation, the Top Executives Compensation Report is designed to enable organizations tounderstand prevailing compensation practices and trends, and assist them in formulating market-alignedand business-model affordable compensation to their Top Executives.The levelling of roles in this report has been underpinned by the Hay Group work measurementmethodology, which enables robust comparison and deeper insights.EndsNotes to editorsPlease note: these findings should be credited to ‘global management consultancy Hay Group’, and not ‘Hay’ or‘Hays’, which are separate and unrelated organizations. 3
  4. 4. News ReleaseFor further information:Miss Nidhi MehraM: + 91 9818331654E: nidhi.mehra@haygroup.comAbout Hay GroupHay Group is a global consulting firm that works with leaders to turn strategies into reality. We develop talent,organise people to be more effective, and motivate them to perform at their best. With 85 offices in 49 countries,we work with over 7,000 clients across the world. Our clients are from the public and private sector, across everymajor industry, and represent diverse business challenges. Our focus is on making change happen and helpingorganisations realise their potential. For more information, please visit 4