The fat compensation packages of C-suite executives have for long been a subject of public debate. Do they deserve huge salary jumps when the rest receive an average hike, or, even worse, none at all?
Earlier this week, Infosys co-founder NR Narayana Murthy expressed his unhappiness over the massive raise approved by shareholders for chief operating officer UB Pravin Rao. In a letter to the media, Murthy said that a 60-70% hike to a person at the top-level is unfair when most other employees get between 6% and 8%.
Quartz spoke to a bunch of industry experts and consultants to understand how this works.
“There is unlikely to be one ideal situation that fits all situations. The compensation that an employer wishes to offer to its employees is really guided by their compensation philosophy,” explained Arvind Usretay, director, rewards (India) at Willis Towers Watson, a global advisory firm.
The calculation
In financial year 2017-18, Indian employees could get an average hike of 9.7%, KPMG India’s annual compensation trend survey, released on April 04, says. The figure could be around 9.8% in the IT industry, the survey added. And most of this is based on the fixed component of the salary structure. Typically an employee’s annual performance, coupled with that of the firm, is taken into consideration while deciding the raise.
However, Usretay said, it isn’t necessary that the pay hikes match at all levels in a company, as long as the process is fair and transparent. After all, top-level employees—CEOs, COOs, CFOs—are said to be directly tied to the company’s performance and are answerable to shareholders and investors.
“Top executives’ pay hikes are dependent on the company’s profit and loss statement. Most of the time, these employees are directly responsible for bringing in revenue. They are the thinkers, while the rest are doers. So there is bound to be some difference,” said Sudeep Sen, assistant vice-president at Teamlease, a staffing and recruiting firm.
Generally, variable pay forms a relatively larger chunk of the pay packages of top executives. It constituted 43% of Rao’s, now increased to 63%, an Infosys statement said. Then there are the incentives. These two components are revised every year, and the cumulative effect throws up a big increase.
In the wake of the row kicked up by Murthy’s letter, Infosys CEO Vishal Sikka released a statement in which he said that “Pravin’s commitment and contribution to the company has been immense, and his partnership over the past three years has been critical to the successes and growth of the company.”
Besides, the C-suite is also the first to bear the brunt when something goes wrong. “The COO of a company has to deliver on a lot of targets which have been given to him by the board of the company. And, in case he doesn’t perform, obviously, their (his) salary will take a hit,” Anil Kumar Pillai, former CEO of JSW Cement, told The NewsMinute.
“If the future trend is bleak, say, (the growth numbers are) in small single digits—in such a scenario, for the top managers to expect whopping hikes of 50% or beyond is unexpected or unheard off,” said Lohit Bhatia, business head (staffing solutions) at IKYA Human Capital Solutions.
At Infosys, profitability and revenue numbers have been looking up since Sikka took charge. He has tried to restrict the high attrition rate at Infosys by improving the work culture and focused on operational efficiencies, and in the process the company has posted robust growth. While shareholders are okay with the performance and compensation decisions, the industry’s future itself is a bit of a concern following rapid automation and political headwinds in crucial markets like the US.
In his statement, Sikka added, ”It is essential for us to see that this revision in his (Rao’s) compensation, as with several of our senior leadership team, is focused on making Infosys more competitive, is benchmarked against peers, is critical for us to retain key talent and aligns the long-term interests of our leadership team with that of our shareholders.”
Just that the founders aren’t buying it.