Top executives may get an 8.9% pay hike in 2022
MUMBAI: Salaries of Indian chief executives and other top company personnel are set to rise the fastest in five years amid a shortage of people to fill such roles, a scarcity that is also boosting pay for those they manage. India Inc.’s CXO pay is expected to increase by 8.9% in 2022 from 7.9% in the previous year, according to human-resource consulting firm Aon India’s 2022 Executive Rewards Survey, which analysed 475 companies across 20 industries.
“There is a talent shortage at CXO levels, and firms have realized that to get high-quality talent, they must pay more. Earlier, the increment gaps between the CXOS and the junior and middle management was wide, but now it has shrunk,” Nitin Sethi, partner and Ceo-india for human capital solutions at Aon, told Mint. In February, Aon estimated that India’s overall average pay hike would be 9.9% as firms struggle to retain talent.
However, performance is more closely linked to salaries than before. Almost 60% of the CEOS’ salaries are now linked to variable pay and long-term incentives (LTIS), a jump from 20-25% about a decade ago. The median salary for chief executive officers is ₹7.05 crore, Aon said.
Manufacturing tops the chart among sectors to see the company bosses get the largest hikes. Manufacturing sector CEOS are projected to get pay increases of 9.3%, followed by the information technology and It-enabled services sector at 9.2%. Top executives of financial services firms, life sciences and the consumer sector are expected to get hikes of 8.2%, 8.4% and 8.1%, respectively. The pay hikes come after almost two years of stagnant or subdued hikes because of the pandemicrelated disruptions. Many CEOS took a pay cut, and some even forfeited their pay as companies struggled to stay afloat, and many fired workers to save costs. But with business activity recovering to near prepandemic levels, pay increases and a war for executive talent are in full swing. “In the wake of the pandemic, talent is in short supply, and the cost of attracting, retaining and engaging leadership talent that grows business is rising rapidly,” Sethi said in a statement. “Not only is the increase in average executive compensation the highest in five years, but variable pay and equity grants have also risen as companies cannot risk losing key talent at senior levels as this has implications on delivering business performance.”
However, the consulting firm noted that while LTIS are typically rolled out to senior management, the talent crunch and high employee turnover are forcing companies to offer them to the high-potential middle management. “Typically, organizations look at 1-2 metrics for providing performance shares. Profits, shareholders’ return and revenue are the top three metrics used,” Aon noted in the data exclusively shared with Mint.
LTIS can be a mix of cash, performance shares and restricted shares, and an employee’s LTI can be measured against company performance-profits, revenue, cash flows and shareholders’ returns.