Companies are approaching shareholders to fix pay levels for their CEOs and executive directors. To assist investors take an informed call, this chartbook on CEO pay, compiled by IiAS using data from comPAYre, IiAS’ cloud-based pay-versus-performance tool, is aimed at sensitizing investors on the remuneration trends across the market, as a basis for determining appropriate pay structures.

CEOs are the primary stewards of a company. They are not just responsible for driving strategic initiatives and maximizing shareholder value, but also play a key role in instituting the underlying ethos which steer organizational culture and stakeholder engagement. Some studies have indicated that close to 22% of variability in company performance can be directly attributed to the CEO. It is therefore important to keep CEOs motivated by compensating them adequately for their leadership.

In today’s competitive environment, this leads to high executive expectations for pay packages which will provide an opportunity to create wealth. But while such payouts may be critical for talent attraction and retention, they need to be balanced with an open discussion on ‘how much is too much’. Our analysis shows that in India, • The top 10 highest paid CEOs in the country cumulatively received more than Rs.560 mn as remuneration in FY18. • CEO pay has outpaced company performance in the past five years. • The number of CEOs getting paid over Rs.100 mn has now increased to 132 (a 25% increase since FY16). • In the SENSEX companies, CEOs are now paid more than 150 times the median employee salary. Given that executive compensation continues to remain a pivotal theme in governance debates around the world, the fulsome payouts have started drawing closer investor scrutiny.

Regulators, on their part, have tried to weigh in on the issue by asking for more disclosures and imposing profitability-related thresholds. Relevant clauses in the Companies Act 2013 and SEBI (LODR), 2015 call for greater transparency by compelling companies to provide specific and granular details on director compensation. This has created disclosure uniformity whichallow for comparability across the board and easier identification of outliers and excesses. Recently, to ensure better alignment of pay with performance, RBI has released guidelines for the banking sector – which, among other things, have asked for higher variable pay, deferred compensation clauses and malus/claw-back provisions to be included in the pay structures of banking executives.

But regulatory directives can only enhance transparency and, to an extent, set the industry baselines. To achieve a more credible mapping of CEO pay, boards need to play a more proactive role.

This chartbook is divided in three sections. Section 1 provides an overview of the CEO pay trends. Section 2 highlights the pay gaps that exist current currently in the Indian markets. The final Section 3 is a deep-dive in the compensation level by sector. The sectoral study includes private sector banks, automobiles and auto-components, pharma and healthcare, IT, FMCG, metals and construction materials and engineering services.

Shareholders should note that: • Data has been sourced from annual reports for the BSE 500 companies. • Data pertains to CY2017 or FY2017-18 (depending on financial year-end for respective companies). • Public sector undertakings (PSUs) have been excluded from the analysis. • Fair value of stock options granted has been included while calculating overall pay. • The pay growth charts pertain only to directors who have been on the board for the past five years.

You can access the chartbook by clicking here