Introduction
In recent years, CEO compensation in India has seen significant adjustments, reflecting broader economic trends and shifts in corporate governance. The Deloitte India Executive Performance and Rewards Survey 2024 reveals some intriguing trends in this area. Understanding these trends can help stakeholders gauge how executive remuneration aligns with corporate goals and economic changes.
Major Findings
- Sharp Increase in Compensation: From the survey, it is evident that average CEO compensation has skyrocketed to INR 13.8 crore in 2024, marking a 40% increase from pre-COVID-19 levels. Interestingly, in 2024, one in every two CEOs reached a target compensation exceeding INR 10 crore.
- Promoter vs. Professional CEO Pay: CEOs with ties to their company’s founding families (promoters) typically earn more, with an average of INR 16.7 crore, compared to their professional counterparts. The gap between promoter and professional CEO pay widened, with the ratio of their compensation increasing from 1.0 to 1.3 over four years.
- Trends in CEO Appointments: About 45% of the top 200 BSE-listed companies (excluding public sector units) experienced a change in CEO over the past five years. Of these new appointments, 60% were internal promotions, which underscores a preference for homegrown talent over external hires.
Compensation Structure and Risk
- Pay-at-Risk: The study highlights that over half of the target compensation packages for CEOs are designed as ‘pay-at-risk’, meaning a significant portion of their pay depends on achieving specific performance targets. For professional CEOs, 57% of their pay is at-risk, compared to 47% for promoter CEOs.
- Long-term Incentives: Long-term incentives remain a crucial part of compensation, especially for professional CEOs, who receive 25% of their target compensation through such schemes, mostly via share-linked incentives.
Changing Landscape of Performance Assessment
The methodology for evaluating CEO and CXO performance is evolving. Companies are increasingly relying on a balanced scorecard that integrates both financial and non-financial metrics to determine executive compensation. This shift aims to align CEOs’ incentives more closely with company-wide objectives and long-term shareholder value.
- Incentive Trends: There’s a growing trend towards using share-based incentives, noted in 75% of companies in 2024, up from 63% in 2020. Conversely, the use of stock options or ESOPs is declining.
Conclusion
The landscape of CEO compensation in India is changing, reflecting a move towards more structured and performance-aligned pay frameworks. This evolution is part of a broader trend towards transparency and alignment with global compensation practices, ensuring that the interests of executives are closely tied to the successes of their companies and their stakeholders.
FAQs
Q1: What is pay-at-risk? Pay-at-risk refers to the portion of compensation that is contingent on meeting predetermined performance targets.
Q2: Why are long-term incentives important in CEO compensation packages? Long-term incentives are crucial as they align the interests of the executives with the long-term goals of the company and its shareholders, promoting sustainability and growth.
Q3: How are CEO compensation trends in India aligning with global practices? Indian companies are increasingly adopting globally aligned practices, including the use of performance shares and structured bonus systems, to ensure competitive and fair compensation schemes.