BackAre Indian CEOs paid in line with performance?
An interactive that looks at whether Indian CEOs are paid in line with performance. BSE-100 companies between 2010-11 and 2014-15
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In the last few years, there has been much controversy, especially in the US, over the sharp increases in the salaries of chief executive officers (CEOs) of large corporations. According to a study by the Economic Policy Institute in the US, CEOs in America’s largest companies were paid an average of $16.3 million in 2014. Between 1978 and 2014, CEO annual compensation adjusted for inflation rose by 997% compared with 10.9% in the annual pay of workers over the same period and at double the rate of growth in the stock market.
The differential in the increases in salaries of CEOs and the rank and file is one way to look at such compensation. Another is performance. So are the salaries of Indian CEOs in line with their performance?
We looked at the salaries of the highest-paid executives at India’s top 100 listed companies, as represented by the BSE-100 share index, and how that changed between 2010-11 and 2014-15. The link between pay and performance, whether measured in terms of net profit growth or share price increases, is weak at best. Between 2010-11 and 2012-13, the median share price grew slowly, or even fell, yet the pay of CEOs grew much faster. But in the last couple of years, the increase in net profit growth or share price growth has been strong and has risen well above the increase in CEO compensation.
As the data visualization below shows, there are interesting differences between the growth in the salaries of chief executives at promoter-run companies, and those at multi-national companies, or Indian companies run by professional managers who are not promoters. Year-on-year increases in pay in promoter-run companies tends to be more strongly related to net profit growth, while in MNCs or professionally-run companies, that link is weaker. In these companies, chief executive pay is more closely related to share price performance.
Companies that saw the biggest rise in the pay of senior executives between 2010-11 and 2014-15 included GMR (over 1,000%), TCS (527%) and Bajaj Auto (426%). If we normalize CEO compensation to the size of the company, by calculating the pay for every thousand crore in net sales by a company, it’s interesting to note that the list changes to an extent. Companies like Divis Laboratories, HDIL and Jindal Steel and Power feature more prominently in this list.
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