The gap between the chief executive officer and median employee compensation in India Inc. has widened from the pre-pandemic years, as per an ET study of 35 listed companies who are amongst the top ones in their respective sectors or by market cap.
The ratio of remuneration of CEOs to median remuneration of all employees in companies like Hindustan Unilever, Indian Hotels Co, EIH Ltd, Infosys, Larsen & Toubro, Sun Pharma, Titan, Tata Steel, JSW Steel, Wipro, Dr Reddy’s Laboratories, Dabur, Voltas and Mphasis, amongst others, have increased in 2023-24 compared to 2019-20, as per their latest annual reports.
Most of the increase is between 20-60%, while there are a handful where it has nearly doubled in ITC, Bajaj Electricals, Mahindra & Mahindra and Whirlpool India.
CEOs, HR heads and compensation experts said the widening gap is due to higher proportion of variable pay and bonus, employee stock ownership plan (ESOP) linked earnings for top bosses, while median salary hikes for other employees have been moderate, mostly in single to low double digits. Also, at entry and junior levels, there has been no proportionate compensation increase in the last 4-5 years.
A compensation consultant said the gap between CEO compensation and management remuneration is a function of as much a general increase in CEO pay as it is on account of a flat or in some cases even a reduction in entry level salaries.
“Supply of resources at low salaries at junior management is quite high and this allows for bulk hiring at low costs. As skill levels go up in jobs, the compensation increases but equally supply decreases. So at an aggregate, the number of higher paid people has remained the same in these organisations leading to lower medians,” the consultant said.
The CEO compensation number used for this ratio is usually the gross compensation number which typically does not include the value of ESOP grants. In some cases it will include the value of ESOP exercise. The ratio therefore may not follow a year uniform pattern as the exercise behaviour is unpredictable, said the consultant.
For ITC, the ratio of CEO remuneration to that of median remuneration for all employees has jumped from 168:1 in FY20 to 400:1 in FY24 for chairman and managing director Sanjiv Puri with a 50% year-on-year increase in his remuneration last fiscal. This is when the average remuneration of employees went up by 10%. For rival HUL, the ratio was 153:1 in FY24 as compared to 151:1 in FY20.
For Indian Hotels Company which operates the Taj chain of hotels, the ratio of MD and CEO Puneet Chhatwal’s remuneration to median remuneration was 565.9:1 in FY24 on back of a 27% year-on-year increase in remuneration. In FY20, the ratio was 314: 1. In Grasim Industries, the ratio was 218: 1 in FY24 as compared to 169:1 in FY20. For HDFC Life Insurance, it is up from 100:1 to 127:1 in this period.
The ratio for Mahindra & Mahindra CEO pay to median pay was 222: 1 in FY24 with a 47% increase in y-o-y remuneration including perquisite value of ESOPs exercised. In FY20, the ratio was 111: 1. In Wipro, the ratio was 1702:1 in FY24 when the CEO remuneration went up by 103% y-o-y, while in FY20 it was 495:1. For Tata Steel, the ratio was 212: 1 in FY24 up from 105: 1 in FY20, while in Sun Pharma it was up from 64:1 to 89:1 in the same period.
Shriram Subramanian, managing director at corporate governance advisory firm InGovern, said as companies are becoming bigger and global in nature, the compensation for CEOs and CXOs is going to increase.
To be sure, in some companies such as Nestle, United Spirits, Trent, Shoppers Stop, Havells, Bajaj Auto, Asian Paints and DCB Bank, the ratio of CEO remuneration to median remuneration of all employees have come down between FY20 and FY24.
HR executives said the reduction of the ratio can be due to the fact that ESOP payout might have been lower, compensation correction whenever a CEO is changed or due to market slowdown, and also an increase in lateral employee hiring at higher payouts.
Subramanian said shareholders do not put much emphasis on the pay ratio itself, as the onus is on the board and management team to deliver on the company strategy and business performance.
“Shareholders are interested in (a) that CEO compensation be largely linked to performance (b) be variable (c) be linked to long term growth and performance. Shareholders care that companies adopt fair wage practices and also ensure that they recruit good talent,” he said.
