The CEO compensation has now exceeded the pre-pandemic levels and this is the first survey where the average CEO total compensation has crossed the Rs 10-crore mark, according to the 2022 Deloitte India Executive Remuneration Survey. It added that the median CEO total compensation is Rs 7.4 crore.
“CXO compensation has also seen a bounce-back from the 2021 levels. COO (chief operating officer), CFO (chief financial officer) and business unit head continue to be amongst the top paid CXO roles. Across most roles, size of the company had a greater influence on the pay levels as compared to sector in which the company operates,” the Survey report said.
The study covered findings across over 470 companies in India on quantum and structure of executive compensation. The study uses the consistent definition of pay and approach to value long-term incentives like stock options. This makes the quantum across various participants comparable.
The increase in pay levels is accompanied by a strong performance linkage 51 per cent of pay for CEO is “at risk” or variable. The realised earnings from this component could drop to zero in case of poor share price and/or fundamental company performance.
“Forty-one per cent of pay for CXOs is “at risk”, 25 per cent of pay for CEOs was in the form of long-term incentives (e.g. ESOPs). For CXOs, long-term incentives accounted for 20 per cent of pay. For companies with a long-term incentive plan, 91 per cent had a vesting period of three or more years,” according to the survey.
The average compensation of CXOs is more than Rs 3 crore with almost 40 per cent of total pay being at risk. CEO to CXO compensation ratios vary between 2.4 for COO to 4.9 for the chief legal officer. Other than COOs, CFOs and business heads are the highest-paid CXOs, according to the survey report.
In spite of an increasing share of pay in the form of long-term incentives, executive talent continues to be highly mobile within and across sectors: two out of five companies analysed had at least one CEO change since 2016. One out of three new CEOs in this period were externally hired. Out of every three externally hired CEOs, two were at a CXO level role in the previous company.
For the CEO, 84 per cent of STI is dependent on company performance. The corresponding number is about 50 per cent at the CXO level. Almost 80 per cent companies prefer a target-based approach for determining STI. “We find that, 60 per cent companies use long-term incentives. ESOPs continue to be the most prevalent type of LTI instrument used,” the report added.
The survey report said, “The last few years have been relatively volatile and therefore unpredictable due to multiple ‘one off’ events both in India as well as globally. As the negative economic impact of COVID 19 subsided over time, the focus has largely shifted from cost optimisation alone to also talent retention. As a consequence, CEO compensation has now exceeded pre-pandemic levels (among other consequences).”