On April 18 – 20, The Conference Board Governance Center is co-sponsoring the University of Michigan Law School Directors’ College for Global Business & Law. As the event approaches, we will be re-posting blogs from the Directors’ College’s blog. So, with all of the talk about Executive Compensation here in the US, we wanted to share a recent post on CEO Compensation in India.
According to a recent study conducted by the consulting firm Aon Hewitt, the median pay for a CEO in India on a purchasing power parity basis was at nearly $3.5 million in 2011 for companies with more than $2 billion in revenues. While this number pales in comparison to the $6 million median pay in 2011 for CEOs in North America, Europe, and the Pacific in companies producing the same level of revenue, CEOs in India have seen a significant growth in their pay over the past few years. According to the same Aon Hewitt study, CEO compensation in India has been growing by 15 percent to 18 percent in the past few years. Also, CEO compensation in India grew at almost twice the rate of the country’s per capita income in 2011 according to data provided by India’s government and private sector.
While many have attributed the growth of CEO compensation in India to performance-based incentives as an emerging trend, the data does not seem to bear this same conclusion. In the United States, fixed pay is 20-25 percent of a CEO’s total pay, while in India fixed pay makes up 35-40 percent. Indian compensation structures are more aligned with British and Pacific structures in regards to performance-based incentives. Others have attributed the growth of CEO compensation in India to global recovery in sectors that are prevalent in India. This theory seems to hold some weight as financial and information technology services tend to align the pay of CEOs in India with their global counterparts; however, in other sectors, such as telecom, there is more of a demand for unique talent that only India can provide.
CEOs in India seem to be moving beyond the role of just managing operations in India. They are also becoming responsible for expanding a company’s brand beyond the Indian market and leaving a global footprint. With this greater responsibility for CEOs in India, companies are recognizing the need to have highly talented executives in charge of their operations. This strong demand for unique talent is severely limiting the amount of suitable human capital and driving CEO compensation higher and higher. With India’s unique role as a potential springboard to growth in similarly situated developing countries, it should not be long until CEOs in India are making almost the same as their American counterparts.