Listed companies have higher portion of variable pay and long-term incentives: Aon Hewitt Survey

CEOs of Indian listed companies enjoy highest total fixed pay of Rs 3.2 crore as against Rs 1.8 crore received by CEOs of private companies, shows a survey conducted by Aon Hewitt. While the amount of fixed pay was highest, percentage of fixed pay in pay mix for CEOs is lesser than total variable salary component.

Indian listed companies also pay the highest to other CXOs. Indian listed companies pay almost 59 per cent of total compensation as annual incentives or long-term incentives to its CEOs, reducing their fixed pay. Whereas, private Indian companies pay around 56 per cent of compensation as fixed pay. Fixed salary component for CEOs of listed MNCs and private MNCs stood at 43 per cent and 52 per cent respectively, as reported by the survey.

The survey shows that the services industry paid highest fixed salary - Rs 2.7 crore - to its CEOs during the year. Whereas total cost to company with long term incentives was Rs 4.8 crore, the highest for CEOs in financial services industry.

Apart from CEOs pay mix, the survey also analyses pay mix of CXOs, which include CFO, COO, CHRO, CMO, Head of marketing, Head Manufacturing and Business Head (Large). As per the survey, IT companies pay the highest to CXOs. Total cost to company with long-term incentives for CXOs of IT companies stood at Rs 2 crore followed by financial services, FMCG/Pharma and services industry with Rs 1.8 crore.

The study shows that IT and manufacturing companies pay 53 per cent of pay as fixed component to its CEOs, which is the highest among different industries. In case of CXOs, IT companies pay 60 per cent as fixed pay. Financial services industry stood last with 40 per cent as fixed component of the total pay for CEOs. Out of remaining, they pay 41 per cent as annual incentives and 18 per cent as long term incentive. The data in the report clearly states that pay at risk is highest in financial services followed by services. In case of CXO compensation also, pay at risk is highest in financial services sector.

Aon Hewitt's executive compensation survey states that stock options continue to dominate long-term incentive instruments used by companies. With convergence of Indian Accounting Standards with IFRS and increased focus on performance, use of full value instrument like Performance Shares seems to be becoming an instrument of choice amongst companies. Restricted stock primarily viewed as a retention instrument is used by companies in combination with other performance based instruments.

The survey, which was conducted between July 2015 and November 2015 on 380 companies within eight industry clusters, also states that companies are positive on business outlook. More than 2/3rd companies say business outlook is improving. As per the report, 2016 has witnessed a marginal fall in increase in fixed pay for top and senior executives as compared to last year.