CEOs salaries - An Analysis

How much is a good CEO worth today? For the need of a yardstick, we shall take up the example of Michael Dell, chairman of Dell Computers, the highest paid chief executive in the United States. When the computer industry was going great guns, he reportedly took home Rs 1,100 crore as a mix of salary and incentives. What Indian CEOs are paid is a pittance compared to that. But analyses quote that Indian CEOs are being paid better than ever before though their salaries are being calculated in new and different ways. To quote figures, Dhirubhai Ambani is paid an annual salary of Rs 8.85 crore. Azim Premji is paid Rs 4.28 crore a year. Brijmohan Lal Munjal of Hero Honda comes third taking home Rs 4.18 crore annually. These men are the highest paid CEOs in our country.

Salaries paid to CEOs today, may seem a little staggering to most of us especially in the present state of economic recession. But then a spate of changes have taken place in the last few years for such phenomenal increase in salaries. The most important being the removal of directives concerning salaries payable to CEOs under the Companies Act. This freedom allows the corporate world to pay higher salaries to its CEOs. Despite this, the fact remains that old economy companies and conglomerates still dominate the list of Top Ten highest paying companies. While only two new economy companies figure in this list - Infosys and Wipro.

When exactly did these changes occur? The mid-nineties could be pinned down. It brought about a bitterly competitive market which demanded CEOs who were strategic thinkers and effective executors. This boiling water brought out the strengths of the then chief executives. Still many couldn't deal with the changed markets and environments. And to add to the woes, companies couldn't find the right kind of CEOs. Talent was scare to come by. Thus with the increase in demand, came higher salaries to capture the best with. Says Deepak Gupta, Managing Director at human resource consulting firm Korn/Ferry International, "In the last three or four years, companies have realised that good, effective CEOs who can contribute towards improving business prospects are not easy to find and when you find them they are not cheap."

And of course with the increased salaries came Performance Evaluation, which was being done in new and different ways. Though some companies stuck with paying salaries according to the percentage growth figures, the current trend tried to delink CEO salaries from growth rates. Evaluation of the process growth came as an alternative, says Mario Lobo, managing partner, Ray & Berndtson. Besides innovative technology, better human resource management, effective time management or inventory management were also being rewarded. Rise in newer industries like financial services, insurance and telecommunications, gave CEOs no benchmarks to follow. Thus in such cases, criterion like increasing capacity, establishing market presence or growing the market were among the others that were taken into account. Professional help from companies like Watson & Wyatt India was taken for performance-linked appraisals.

Another aspect that needs to be mentioned is the rise in the variable salaries. From the fixed salaries and the occasional perquisites, came variable salaries and ESOPs. About five years ago, apart from the basic salaries, CEOs had components like free accommodation, medical benefits and perquisites like cars, club memberships, leave allowance, utilities, servants and others included in their take home package. The variable component in the package was about five per cent, but now it has definitely gone up. Tax and the coming of several multinationals were some of the reasons why the variable pay went up. A more simple and clearer structure of pay came about with a base pay, variable pay and retirement benefits. Multinationals meant that their Indian CEOs were paid according to international yardsticks. Despite everything, there is still a yawning gulf between salaries paid to Indian CEOs and chief executives in United States.

From here, there is hope that the Indian salaries will continue to rise to match international salaries in every way possible.