Huge salary disparity between owner, professional CEOs: Study
New Delhi: The owner CEOs of Indian companies get much higher salaries than their professional peers, while the top management pay in private sector is also much higher than their public sector counterparts, a study said Wednesday.
Among other findings of the Executive Remuneration study, conducted by shareholder advisory firm, Institutional Investor Advisory Services India Limited (IiAS), the highest salary paying companies are not necessarily the most profitable or the largest in terms of market value.
"At a time when the global markets plagued by a prolonged slowdown are stumbling towards recovery, public scrutiny and criticism of high executive remuneration is getting sharper.
"In India, while there have been some isolated cases of discontent regarding executive pay this umbrage is nowhere close to the 'say-on-pay' movement that is rocking US and Europe," IiAS said in the study.
As per the study, the average CEO remuneration for the BSE 500 companies has gone up in the last four years by 25 percent, which is largely in line with increase in profitability.
This is primarily because of the two-part remuneration structure prevalent in most companies which comprises a fixed pay along with a variable component, but the pay is relatively on higher side at several companies, IiAS said.
"There is a substantial gap between salaries of owner CEOs and professional executives. For family owned businesses, where multiple family members are on the board, their combined remuneration tends to be on the higher side and in one case constituted almost 70 percent of the total staff costs.
"The pay disparity between the public sector and private sector has grown over the last few years. For the BSE 100 companies, while the public sector executives were paid an average remuneration of Rs 51 lakh FY11, their private sector peers were paid Rs 6.89 crore," it found.
The study also showed that the gap between average employee salary and CEO salary is very high, with CEO salaries being as high as 285-times of average staff salary and 85-times of the median employee pay.
IiAS said that the average annual Managing Director remuneration in FY12 for Sensex companies was Rs 10.9 crore, while the same for BSE100 and BSE500 companies stood at Rs 6.2 crore and Rs 3.6 crore, respectively.
However, this was well below the average remuneration of Rs 28 crore or USD 5.3 million for the S&P500 companies -- the top 500 listed companies in the US.
Even after adjusting for purchasing power parity, the average CEO remuneration in India is almost three-fold for the top 500 companies in the US.
Among other findings, IiAS said that the top management salaries at family-controlled firms tend to be higher than those run by professionals/outsiders, while the remuneration level also varied greatly with the nature of the primary business of the company.
Among the BSE100 companies, the promoter executives took home in FY12 an annual remuneration of Rs 12.17 crore on average while professional executives were paid an average remuneration of Rs 3.83 crore. IiAS further said that this gap has increased over a period of time.
The report named top-paid executive for FY12 which included Sun TV's Chairman Kalanithi Maran and Executive Director Kavery Maran with a remuneration of Rs 57.01 crore each, Aditya Birla group Chairman Kumar Mangalam Birla (Rs 47.11 crore), Hero Motocorp MD & CEO Pawan Munjal (Rs 34.47 crore) and Chairman B L Munjal (Rs 34.44 crore).
IiAS said that the remuneration structure at the companies needs to be more transparent, granular and in line with good corporate governance practices.
"Currently, the approval process for director remuneration entails passing a special resolution at the company’s general meeting.
"However given that most companies in India are family-owned, we find that such resolutions are carried easily even when minority shareholders oppose the proposed remuneration. A more transparent approach is therefore required," it added.