Institutional EYE

Commentary on Corporate Governance Issues

CEO Pay Sector Analysis: Private Banks

April 11, 2018

 

This is the time of the year when boards are called upon to fix pay levels of its members for the coming financial year. This series on CEO pay, compiled by IiAS using data from comPAYre, IiAS’ cloud-based pay-versus-performance tool, is aimed at sensitizing boards on the remuneration trends across the market, as a basis for determining appropriate pay structures. This third piece in the series is focused on pay levels in private sector banks.

 

Private sector banks and their boards have been in the news for the past couple of weeks. In this context, IiAS trains the spotlight on private sector bank CEO remuneration. The sector is characterized by marginal representation by promoters and contrary to public perception, women directors.

 

 

Exhibit 1: Number of Promoter vs Professional CEOs in the sector

 

 

There are very few promoter CEOs in the sector with more than 85% of the CEO posts being held by professionals.

 

 

 

Exhibit 2: Gender Mix in the sector

 

 

While, the perception is that gender diversity is not an issue in banks, the actual fact is that, as on 31 March 2017, there were only three women CEOs/EDs present across 14 private sector banks

 

.-----------------------------------------------------------------------------------------------------------------------------

 

Pay benchmarks: Broadly aligned with the market

 

 

 

Exhibit 3: Median CEO pay in sector (Rs.mn)

 

 

The median remuneration of CEOs in the sector is aligned with the S&P BSE 500. But the sector has a narrower pay range than the market.

 

 

 

 

 

 

Exhibit 4: CEO pay to median employee pay (x)

 

 

 

 

In private banks, salary levels are generally higher than the S&P BSE 500. Hence, the CEO pay as a multiple of median employee pay is reasonable.

 

 

 

 

 

Exhibit 5: Fixed vs Variable Pay (%)

 

 

The pay mix in the sector closely resembles that of the S&P BSE 500. ESOPs are a common mode of incentive in the sector – almost 37% of the directors in the sector were granted ESOPs in FY17.

 

 

 

 

 

Exhibit 6: Board Compensation as % of Profits

 

 

Given the large size of these banks, the aggregate board compensation, as a % of net profits, is lower than the rest of the market.

 

 

 

 

 

------------------------------------------------------------------------------------------------------------------------------

 

Industry Metrics: However, in some pockets, pay has been excessive and is not aligned with size or performance

 

 

 

Exhibit 7: Pay levels of 5 highest paid CEOs in sector (Rs.mn)

 

 

 

 

 

Almost 36% of CEOs in the sector were paid more than Rs.100 mn in FY17.

 

 

 

 

 

 

Exhibit 8: CEO pay as compared to asset size (size of bubble represents pay levels)

 

 

While CEO pay is well correlated with asset size, two CEOs in the ‘100 mn club’ are running companies with an asset base of less than Rs.2 tn.

 

 

 

 

 

Exhibit 9: CEO pay as compared to market cap (size of bubble represents pay levels)

 

 

The correlation is a bit weaker for market cap. Four CEOs are well above the trendline – implying that their pay levels are disproportionate to the market cap of the bank.

 

 

 

 

Exhibit 10: Growth in CEO pay vs growth in gross NPA ratio (since FY13)

 

 

Surprisingly, in some banks, the growth in CEO remuneration in the past has corresponded with a spurt in NPA levels.

 

 

 

 

A modified version of this report was published by Mint on 11 April 2018. You can read the earlier reports by clicking the links below:
Part 1: Indian CEO salaries outpace performance
Part 2: Bridging the pay gap

 

For full report click here

 

Please reload

Recent Posts
Please reload

Archive
Please reload

Older Posts (till 31 Dec'15)
Please reload