Photo: iStockPhoto
Photo: iStockPhoto

Are CEOs in India paid in line with the performance of their companies?

In tough years for the business or on the stock market, salaries rose faster. In better years, salaries grew at a slower pace

How do the increases in pay and benefits given to chief executives (CEOs) of the top 100 listed companies in India compare with the performance of those companies, either in terms of growth in net profit or share price?

In tough years for the business or on the stock market, as the period between 2010-11 and 2012-13 was, salaries rose faster. In better years, like the subsequent two years, salaries grew at a slower pace.

SALARY GROWTH vs NET PROFIT GROWTH

Since 2010, changes in net profit for the median company have been far more volatile than changes in CEO pay. When net profits have dipped sharply, pay fell by far less, as was the case in 2011-12 over a year earlier. But in recent years, as net profit growth has risen sharply, rises in pay of CEOs have been less strong.

SALARY GROWTH vs SHARE PRICE GROWTH

The relationship between growth in median CEO pay and median changes in share price is quite weak. Remuneration growth remained in double digits even in years when median share prices showed little growth.

PROMOTER-RUN vs PROFESSIONALLY-RUN

For promoter-run companies, increases in remuneration for the coming year tend to be strongly related to changes in net profit in the current year. For professionally-run and multinational companies, that relationship is weaker. In these companies, remuneration seems more closely coupled to share price performance.

HIGHEST INCREASE IN FIVE YEARS

GMR Infrastructure led the companies that gave the biggest pay increases to their CEOs between 2009-10 and 2014-15.

TOP-PAID EXECUTIVES: ABSOLUTE TERMS

In three of the five years, Naveen Jindal of Jindal Steel and Power was the top-paid executive in absolute terms.

TOP-PAID EXECUTIVES: RELATIVE TERMS

However, if we adjust remuneration for size of the company, Murali K Divi of pharma firm Divis Laboratories was the top-paid executive in four of the five years.

Notes:

1. For each company, in each year, the pay of the highest-paid executive, from chairperson onwards, was considered.

2. The starting point of the study was the 100 companies that make up the BSE-100 index. This set was reduced to 75 as we excluded companies that did not have complete data for two years or more, or which saw a leadership change in the middle of the year or a leadership vacancy, making a comparison difficult.

3. Several promoter-run companies have a CEO, but the chairperson is the highest-paid executive. In such cases, we included the chairperson and not the CEO.

4. Cases where the change in net profit is below -100% are those where companies have swung from a net profit to a net loss.

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