CXOs may get 9.1% pay hike, but clawbacks will be strict
2 min read . Updated: 31 Jan 2023, 06:57 AM IST
PremiumAverage compensation of a CEO in India may be ₹8.4 cr, up 21% from 2019 levels: Aon survey
India Inc.’s C-suite executives will receive a 9.1% salary hike on an average in 2023, but will have to meet long-term environmental, social, and governance, and gender diversity goals to claim additional incentives.
While companies are making clawback provisions more stringent, average compensation of a chief executive officer in India is expected to be at ₹8.4 crore, up 21% from the 2019 levels.
“The CXOs are expected a 9.1% salary hike in 2023 against a 9-10% median increment for employees," Nitin Sethi, CEO, human capital solutions, India and South Asia, Aon, said.
According to Aon India’s Annual Executive Rewards Survey published on Monday, the projected 9.1% increment for CXOs is lower than the 9.7% increase in 2022 . In September, Aon had estimated the average salary hike for employees at 10.4% for 2023, but a global recession, layoffs and funding winter, has been a damper.
The study involving 500-plus companies showed that the compensation for chief financial officers will be at ₹3.99 crore, followed by chief technology officers at ₹1.97 crore. Aon said the rise of the CTO in the salary hierarchy is a new trend as companies across sectors digitize businesses in a post-pandemic world.
Although compensation of the CXOs have been rising, increasing scrutiny from shareholder activists have forced firms to bring in more stringent clawback options. “With rising shareholder activism, pay governance has become a key focus area for India Inc. As a result, organizations are updating Malus clauses, or additional checks before vesting of long-term executive incentives, particularly for material financial restatement," said Pritish Gandhi, director and practice leader, executive compensation and governance practice in India, Aon.
The 12th edition of the survey said companies are changing clawback clauses to enforce stricter rules. “...claw back clauses, which allow organizations to retrieve past pay-outs under exigent circumstances of fraud and misconduct, are also being applied for a duration of three to five years, as organizations design their 2023 executive compensation programmes," said Gandhi.
The salary structures of company leaders are inching closer to their US counterparts, where the proportion of long-term incentives are significantly higher than the fixed component. The average long term incentives (LTI) for CEos of the BSE Sensex companies are at ₹10 crore.
Within the pay-at-risk compensation structure—the sum of variable pay and long-term incentives for total compensation—the share of incentives has been increased to 40%, up from 26% in 2015-16, Aon said in its report.
Now, an Indian CXO’s salary has 58% guaranteed pay, 25% long-term incentives and 17% variable pay, while CEO’s compensation have 40% share of fixed and incentives, and 20% is variable pay.
In comparison, a CXO in the US has just 17% guaranteed amount, 21% variable pay and 62% is incentives, while 64% of a CEO’s salary in US is linked to incentives, 23% variable pay and 13% is the fixed component.
Sethi said the proportion of fixed salary for CXOs in India will move the US way and, in 5-10 years, about 25% of CXO’s salary will be guaranteed.
In data shared exclusively with Mint, Aon said about 58% of BSE 30 companies use at least one long-term incentive plan, wherein stock options are most preferred. This is very common for financial institutions as regulations restrict them from providing full value instruments like restricted stock or performance stock units . However, firms in other sectors are customizing stock plans to woo and retain senior executives. About 42% of BSE 30 firms have diversified LTIs “to both incentivize the management to achieve performance objectives and attract and retain key talent", said Aon.
