BT Editor Prosenjit Dattta on salaries of Indian CEOs

Are CEOs in general overpaid? More importantly, are Indian CEOs overpaid? The subject generates heated debate whenever the CEO salaries of the top 100 firms are announced, or when news breaks about the humongous compensation at which a star CEO has moved from one company to another. A recent report pointed out that most Indian CEOs get several hundred times the median pay in their companies and that has ignited the debate afresh.

The point is, there is no easy answer to the CEO salary questions. The answer changes each time the frame of reference is changed. Typically, you can try and gauge whether a particular CEO is overpaid or not based on a few parameters. For example, if you only take into account what a typical CEO gets paid vis--vis his middle management or entry-level employee, the answer will always be "Yes, all Indian CEOs are overpaid - and vastly overpaid at that." (Of course, the counter argument in this case can be that it is not the CEO who is overpaid, it is the entry-level employee who is underpaid and that needs rectification.)

Instead of looking at the salary gap between the top and the bottom layers of management, if you try and work out how much value a CEO has added after taking over a company, the kind of revenue and profit growth the firm has seen under his leadership, and the amount of shareholder returns he has generated during his tenure, the answer will change. Some CEOs generate enormous value and tremendous shareholder wealth per rupee they earn. Others tend to earn big salaries even though the company performance seems mediocre.

Finally, you could frame the question - whether our CEOs are overpaid or underpaid - vis-a-vis their global counterparts. In most cases, the answer would be "underpaid by a vast margin", though in rare cases, it might be the reverse.

When we started compiling and slicing CEO (and top management) compensation data for our cover story this issue, and also started speaking to CEOs and HR consultants, a few trends became visible. For one, CEO salaries in India (particularly professional CEO salaries) have been going up steadily over the past decade. This is a reflection of the increased global competition that CEOs of all big companies in India are facing. There is also a recognition that talent is fungible in today's globalised world, and, therefore, if you want top talent, you need to pay top dollar.

Of late, many global practices are being adopted while structuring CEO compensation in the country. Performance-linked pay, stock options, and severance packages are all getting the kind of attention they never got even a few years ago.

In the case of promoter CEOs - of which India has a huge number - the issues get even more complex. Some CEOs give themselves modest (by CEO standards) pay because their real income and wealth is generated by the stock prices of their shareholdings and the dividends they get annually. In a few cases, promoter CEOs give themselves huge pay packages just to make a point.

Deputy Editor Chitra Narayanan wrote our cover story with help from Principal Research Analyst Jyotindra Dubey. Our bureaus in Mumbai and Bangalore chipped in with valuable inputs and insight.