Executive compensation is expected to rise moderately by 9 percent in the coming year as 30 to 44 percent of the overall executive compensation mix comprises incentives – both short-term and long-term.

On the backdrop on global economic uncertainty, compensation of CEOs and their top executives is set to increase by a modest 9 percent and 9.4 percent respectively in the coming year. This exhibits a dip from the double-digit growth witnessed in previous years.

According to a report by Hay Group, global management consultancy, The Top Executive Compensation Report 2012-2013 features insights from about 158 organizations across the sectors of auto, chemicals, basic resources, oil and gas, fast moving consumer goods (FMCG), retail, construction and materials, telecommunication, utilities, industrial Goods, and transportation.

It is designed to enable organizations to understand the prevailing compensation practices and trends in India.
Sridhar Ganesan, Rewards Practice Leader, Hay Group India explains, “Hay Group research has found that markets, strategy, culture, and ambitions are the four real drivers of modern-day executive compensation. This is important to keep in mind as data analytics on executive compensation have to be interpreted beyond just the stated numbers.”
Statistical analysis between the Hay Level (proxy for job contour in terms of scope, scale, size, complexity, etc.) and Total Cost to Company (CTC) found a co-relation of 0.26 — indicating that other factors, besides just the organization’s contour affect CEO compensation.

According to Ganesan, “CEO pay can be contextualized into four potential context clusters — the Carers, the Contractors, the Cultivators, and the Fundamentalists. The Carers are companies that operate in an environment of social capitalism, while the Contractors have a clear focus on extracting business value from contracts and terminating them in case of failure. On the other hand, the Cultivators have the ability to spin a compelling story and inspiring investors and employees with their energy to take risks, while the Fundamentalists believe in an environment of continuous innovation without compromising on the company’s identity and cultural strengths.”

Adding further, he said, “Tata Group’s approach is of a Carer — where the organization uses social and environmental consciousness to create a powerful employee and customer brand — thus the CEO pay will reflect the organization’s long-term ideals. On the other hand, current CEOs of online portals such as Flipkart and Jabong mark the Cultivator approach, reflecting dynamism and highly leveraged payout norms.”

The report also finds companies placing a much higher value on the role of the CEO for achieving overall business results as compared to the top management team — CEOs are paid three times more than all other senior executives.
This multiplier goes up to more than four in industries such as Basic Resources and Retail, while it falls below the average in industries such as Transport and Logistics, and Construction and Materials.