India Inc. paid its CEOs an average compensation of ₹11.2 crore in FY 2021-22, with the median compensation totalling ₹7.4 crore, which is the highest in three years, shows the 2022 Executive Remuneration Survey by financial advisory and consulting firm Deloitte.
The survey shows the CEO (chief executive officer) compensation has exceeded pre-pandemic levels in FY22. This is the first survey year where average CEOs' total compensation crossed the ₹10-crore mark. CXOs' compensation, too, has seen a bounce-back from the 2021 levels. "The average compensation of CXOs is more than ₹3 crore, with almost 40% of total pay being at risk," says the survey.
Chief operating officers (COOs), chief financial officers (CFOs) and business unit heads continue to be amongst the top paid CXO roles, the survey finds. "Across most roles, size of the company had a greater influence on the pay levels as compared to sector in which the company operates," it adds.
As part of long-term & short-term incentives, the Deloitte survey shows that for the CEO, 84% of short-term incentive is dependent on a company’s performance. The corresponding number is about 50% at the CXO level. "Almost 80% companies prefer a target-based approach for determining short-term incentives. We find that 60% of companies use long-term incentives," shows the survey, adding that ESOPs (employee stock ownership plans) continue to be the most prevalent type of long-term incentives instrument used.
In pre to post-IPO long-term incentive strategy, the survey observes an almost 50% drop in the annualised equity burn rate of companies that have recently listed when their pre-IPO grant patterns are compared with their post-IPO long-term incentive patterns. "Also, one out of three companies changed their long-term incentive plan when transitioning from pre to post IPO stock grants," it shows.
The increase in pay levels is accompanied by a strong performance linkage, shows the Deloitte survey, adding that around 51% 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 or fundamental company performance. Around 41% of pay for CXOs is “at-risk” 25% of pay for CEOs was in the form of long-term incentives (e.g. ESOPs). For CXOs, long-term incentives accounted for 20% of pay. For companies with a long-term incentive plan, 91% had a vesting period of 3 or more years," shows the data.
In spite of an increasing share of payments in the form of long-term incentives, executive talent continues to be highly mobile within and across sectors. Two out of 5 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," shows the survey.
During the previous fiscal year (FY21), the average CEO remuneration was ₹9.4 crore, while the median compensation was ₹6.4 crore. During FY20, the average and median compensation for CEO stood at ₹9.8 crore and ₹6.9 crore, respectively.
