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Indian executives prefer clearer package: PwC, LSE

Last Updated: Tuesday, June 26, 2012 - 18:20

Mumbai: Most Indian executives prefer clearer pay package to a more ambiguous one of a similar or of higher value, according to a recent PwC and London School of Economics (LSE) study.

"Around 50 percent of the executives in India choose a clearer pay package to a more ambiguous one of the same or potentially higher value," it pointed out.

The study finds that globally, complexity and ambiguity consistently destroys the perceived value of incentive plans, though there are regional variations in attitudes to incentive pay.

To understand the impact of pay and incentives on senior executives, the study was conducted with over 1,100 senior executives across 43 countries.

According to the findings, senior executives are risk averse and a simpler plan, based on long holding periods for stock may be a better way of aligning executives and shareholders than complex performance metrics.

In fact, around 55 percent of Indian executives believed that their company's long term incentive plan (LTIP) was effective, demonstrating that the recognition provided by participating in LTIPs seems to be more important to motivation than the financial incentive.

Further, the study found that fairness in pay was a fundamental issue, with it being valued the highest among Indian executives.

Interestingly, senior executives were willing to take a 28 percent pay cut for their ideal job.

However, this figure was lower among Indian executives, at 24 percent, but this still represents a significant willingness to trade in money for a job that is meaningful.

Commenting on the flawed perception that complex reward plans result in better performance, PwC India Executive Director?Consulting Padmaja Alaganandan said: "Only a limited number of executives will be motivated by highly leveraged and volatile pay packages, hence providing choice and flexibility in pay programmes is essential."

Executives value deferred pay significantly below its economic or accounting value ? a deferred bonus is typically discounted by around 50 percent over three years, she added.

However, it is the recognition that participation in Long Term Incentive programmes confers, as well as the fairness with respect to equity with peers that make the difference, she said.

"It is also interesting that executives are willing to trade in compensation for the 'ideal job' ? signalling that the need of the hour is design of alternate roles and career paths, which can be truly motivational," she pointed out.

"Except for a minority, two-thirds of participants value the opportunity to participate in their firm's long-term incentive plan. This is a significant deviation from the myth that monetary benefits are the most important factor influencing executives, reveals the study," she added.


First Published: Tuesday, June 26, 2012 - 18:20
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