Executive pay gets under the spotlight more often than not. Executives being the changemakers at organizations who spearhead decisions, they also command executive-grade compensation in terms of pay scales and benefits. The topmost operators in the organization who make decisions affecting lakhs if not crores in revenue and turnover, are and have always been the highest cost overheads among the wage vertical. A broad outline suggests that the cost of payroll (wages paid to the entire workforce employed by companies) across the world ranges between 10% to 60%. While that’s quite a wide margin, labor costs of products and services can range between 50%-60% of a company’s entire expenditure for companies to still be profitable.
Executive pay at the turn of the decade
However, in India, the executive pay grade is quite different from that of the entry-level pay grade or even the average pay grade. According to an Economic Times findings, one National Stock Exchange-listed company paid the CEO 249 times more than the average employee in their company. This ratio stands to range anywhere between a couple of hundreds to over 4000 times in disparity. For this reason alone, executive pay is observed with a critical eye, specifically against the background of a worldwide pandemic where nearly everyone faced financial strain and strictures.
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Despite the grim employment outlook, roll-backs, or hold-ups in promotions, and hiring freezes, Indian executives have not suffered a huge pay cut. According to a report by Business Today of the Aon global professional services survey, on average, they have received a pay hike of 6% across the board. The contrast of this report is against the global financial meltdown of 2008-09 which caused a cut of at least 5%. In the present scenario, executive pay has been undeterred by the pandemic in at least a handful of the high-performing sectors – IT, ITES, Pharmaceuticals, and Consumer Goods.
How the pandemic brought executive pay into focus
The argument in favor of executive pay, especially in these sectors that have contributed highly to the economy and gleaned results in the last fiscal year is a strong one: these executives have adapted to the veering fortunes of demand and supply and held their nerves while the country was going through a tumult of lockdowns. Choked supply chains squelched suppliers and dealerships, intermediaries, and last-mile agencies for the better part of a quarter, even two. Top executives in all these sectors thought on their feet and staked their claim to viable solutions, going the extra mile to secure contracts, tenders with important players, and came up with out-of-the-box solutions. Despite these efforts, projections did not pan out in many cases, and performance thresholds were temporarily relaxed or removed due to COVID-19. As the carnage of the medical emergency went on for nearly a year, not all margins improved.
On the flip-side, the front-line workers in various manufacturing, automobile, and logistics sectors also faced a tough year but did not see a hike on par with that of executive pay. Some even lost their jobs or were rehired after a hiatus.
Whether executive pay sees cuts or not, the trend proceeds towards greater transparency – why and how a pay bracket is fixed for each cadre. A great amount of disclosure shall accompany the executive pay decisions of this year and the future, with shareholders voting and advocating their rights in full.
References:
- Labor spending or overspending? Where workforce costs are hiding|Deloitte LaborWise|ISG and Deloitte Analysis| 2017
- Executive Pay Growth During the Pandemic Faces Scrutiny|SHRM|Joanne Sammer|June 4, 2021
- Pandemic no bar, top execs to see 6% pay hike in 2021: Aon|BusinessToday.In|April 14, 2021
- 4045 times is the highest CEO pay ratio in India Inc for FY19|Kiran Kabtta Somvanshi|Economic Times.Indiatimes|Jan 20, 2020
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