Institutional EYE

Commentary on Corporate Governance Issues

CEO Pay: Unlinked to performance

March 26, 2018

 

This is the first of a multi-part series on CEO pay, put together for Mint. A modified version of this report was published by Mint on 26 March 2018.

Around this time every year, boards are called upon to fix pay levels of its members for the next financial year. This series on CEO pay complied by IiAS, is aimed at sensitizing boards on the remuneration trends across the market, as a basis for determining appropriate pay structures.  
 

An IiAS study on executive remuneration reveals that, in the past five years, CEO pay in the top 500 companies has outpaced performance. The number of executives getting paid over Rs.100 mn has increased to 123 (up by 16%) in just the past year. High CEO remuneration is seen across the top 500 companies - and is not restricted to companies of size or those showcasing performance. 

Nomination and Remuneration Committees (NRC) need to guard against this, especially at a time when executive pay is becoming a pivotal theme in the corporate governance debate. They must devise pay arrangements with well-defined performance metrics and claw-back mechanisms and make transparent disclosures that help stakeholders understand the remuneration pay-outs.

If NRCs are not judicious about the level of CEO remuneration, boards may well face the ire of employees as well as greater investor scrutiny. For the market, it may possibly create an upward bias on CEO remuneration.

 

 

  

 

Disclosures:
• Data has been sourced from annual reports for the S&P BSE 500 companies
• Data pertains to CY2016 or FY2016-17 (depending on financial year-end for respective companies)
• PSUs have been excluded from the analysis, except for the pay range chart
• Fair value of stock options granted has been included while calculating overall pay.

 

For full report, click here

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