Monday February 8, 2021

Update - Directors' Compensation February 2021

Author:  Adit Jain, IMA India January 2021

Board Rewards

IMA India’s 2020 Executive and Board Remuneration report is based on a detailed analysis of compensation trends amongst 16,000 executive and non-executive Directors on the Boards of approximately 1,600 listed companies and 250 unlisted ones. For the sake of consistency, the research methodology includes only those firms with revenues exceeding Rs 100 crores. The report assesses a 5-year trend and draws representation from both the private sector and Government enterprises. The data presented includes the following categories: Chairman, Managing Directors/CEOs, CFOs, Whole Time Directors, Company Secretaries and Non-Executive Directors (NEDs). Our findings are intended to provide compensation benchmarks for Board members with segmentation and peer comparisons based on sector, ownership, revenue, profits and market capitalisation.

95% of the sample comprised private sector companies and the balance 5% Government-owned ones. 75% are listed, further segmented into large cap, mid cap, small cap and so on, whilst unlisted firms constitute the balance 25% of the sample. The break-up of companies from a revenue perspective is under seven categories, starting with revenues in the region of Rs 1 billion going on to that exceeding Rs 100 billion. Further categorisation involves 11 sectors such as chemicals, resources, industrials, consumer goods, pharmaceuticals, automotives, healthcare, and various services.

In the year 2019-20, private sector Chairmen have been the highest paid of all C-suite executives with an average CTC of Rs 36.2 million, up from Rs 30.6 million four years ago. In comparison the average CEO earns somewhat less, at Rs 31 million, up from Rs 23 million in 2016. However, the variances based on the nature of business, its size and ownership are sizeable. Our report scrutinises each category carefully with comprehensive insights. On the other hand, salaries in Government-owned enterprises are disappointingly a fraction of their private sector peers, with Chairmen receiving on the average Rs 8.2 million. Not surprisingly, older companies tend to remunerate higher. For instance, those established before 1991 pay, on the average, 3.5 times more than new age ones – those established in 2008 or later. These salary gaps narrow somewhat at the CFO and Executive Director levels. Compensation is strongly correlated with company size. Consequently, larger organisations, both in terms of market capitalisation and revenue, typically pay multiple times higher than smaller ones. Also, contrary to popular perception, foreign multinationals do not always offer the best pay packages.

Surprisingly, the research indicated that there is no single ‘best paymaster’ across industry segments although automotive companies have generally offered the larger packets at the highest level. Moreover, Chairmen and CEOs receive a much larger share of their pay – 24% – in the form of a variable component than do other executives. Government owned companies pay only a small fraction – typically less than 10% – as variable.

Interestingly, on a 4-year CAGR basis, company profits have grown faster than salaries across all levels. On the other hand, the growth in executive compensation, particularly for CEOs and CFOs, has been faster than growth in revenue. This would suggest that executives are being rewarded more for growing the top-line and perhaps market capitalisation, than the bottom line. Our report presents a detailed analysis of a number of aspects of Board compensation in a way that enables readers to benchmark their organisations against specific peers.