The average compensation of Indian CEOs touched a three-year high in FY22 at `11.2 crore and median at Rs 7.4 crore, according to a Deloitte India executive remuneration survey. The survey includes compensation for both promoter CEOs as well as professional CEOs and takes long-term incentives into account, and covers more than 470 companies across manufacturing, consumer products, IT, ITes services, life sciences and financial sectors.
In FY21, the average salary of CEOs was Rs 9.4 crore and median Rs 6.4 crore, which was slightly subdued when compared to 2020, when the average salary with long-term incentives stood at Rs 9.8 crore and median at Rs 6.9 crore.
In FY22, professional CEOs earned Rs 10 crore on an average while the median compensation along with long-term incentives was Rs 7.4 crore. Similarly, in FY21, the average was Rs 9.1 crore while the median stood at Rs 6.2 crore, which was again lower compared to 2020 when the average stood at Rs 9.7 crore and median at Rs 7.1 crore.
About 51% of pay for CEOs 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. Nearly 25% of pay for CEOs was in the form of long-term incentives.
Also, the average compensation of CXOs in FY22 was Rs 3.2 crore with almost 40% of total pay being at risk and long-term incentives accounted for 20% of pay. The median pay was at Rs 2.4 crore, which has remained stagnant at this level for the last two years. In FY21, the average pay of CXOs was at `3 crore and, in 2020, it was Rs 3.5 crore.
CEO-to-CXO compensation ratios vary between 2.4 for COO to 4.9 for chief legal officer. Other than COOs, CFOs and business heads are the highest paid CXOs, the survey highlighted.
For the CEO, 84% of short-term incentives are dependent on company performance. The corresponding number is about 50% at the CXO level. Almost 80% companies prefer a target-based approach for determining short-term incentives. While 60% companies use long-term incentives, ESOPs continue to be the most prevalent type of long-term incentive instrument used.
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 increase in pay levels is accompanied by a strong performance linkage. For companies with a long-term incentive plan, 91% had a vesting period of three or more years, it 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,” Deloitte said in a statement.
The churn at the top management level is high, as 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. According to the survey, two out of five companies analysed had at least one CEO change since 2016. One out three new CEOs in this period was externally hired, and out of every three externally hired CEOs, two were at a CXO level role in the previous company.