CEOs are paid more now but half of the earnings are 'at risk'

• The average pay of a CEO is around ₹10-11.2 crore – higher than the pre-pandemic levels.
• The risk component constitutes 51% of pay for a CEO, on an average.
• The average compensation of a CXO is more than ₹3 crore, and almost 40% of total pay is at risk.

The CEOs of Indian companies seem to be doing well. According to a Deloitte report, the average CEO pay is around ₹10-11.2 crore, and it’s higher than what it was before the pandemic.

However, more than half of the total compensation is ‘pay at risk’, says the 2022 Deloitte India Executive Remuneration Survey report. Pay at risk is the portion of an employee's compensation that is variable – meaning it is at risk of not being paid out.

The report says that this risk component constitutes 51% of pay for a CEO, on an average.

“The realized earnings from this component could drop to zero in case of poor share price or fundamental company performance,” says the Deloitte report.

Risky or otherwise, organizations seem to be keen on hiking compensation for its top brass. However, they want to ensure that the health of their company is good enough to afford it.

The report surveyed over 470 companies in India on quantum and structure of executive compensation. The report has used a consistent definition of pay and approach to value long term incentives like stock options.

C-suite pay rises too but with riders

The pay for the C-suite has also improved as the CXO pay bounced back from the 2021 levels.

As per the report, the average compensation of CXOs is more than ₹3 crore and almost 40% of total pay is at risk. Other than CEOs, chief operating officers and business heads are the highest paid CXOs.

For CEOs, 84% of short term investment (STI) is dependent on company performance, whereas, for CXOs this percentage is 50%.

“Almost 80% of companies prefer a target-based approach for determining STI. We find that 60% of companies use long-term incentives. ESOPs continue to be the most prevalent type of LTI instrument used,” the report says further.

Companies changed their LTI plans post IPO

According to the report, one in three companies who have recently listed changed their LTI plan when transitioning. In the last one year many tech companies like Zomato, Delhivery, Nykaa and Policybazaar.

A drop of almost 50% is also observed in the annualized equity burn rate of companies that have recently listed when their pre-IPO grant patterns are compared with their post IPO LTI patterns.

Two out of five companies in India had at least one CEO change since 2016, while one in three companies hired new CEOs externally. Out of every three externally hired CEOs, two were at a CXO level role in the previous company, the report said.

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