According to a recent report by consulting giant Mercer, executives in India will be pocketing higher levels of average base pays in 2012 than any other country. While that is something to cheer about, the survey also pointed out that the average base pay for heads of organizations in India which was 8.4% in 2011 will shrink a bit to 8.3% in 2012, followed by China at 6.5%. The survey looks at 201 participating companies in Asia out of which 41 are in India. 63% of participating Indian companies were publicly-traded.
The Mercer survey pointed out a blaring difference in pay structures of the company heads of Indian companies as compared to their counterparts in Asia as only 10% of the average Indian company head’s salary was made up of Long-term incentives. In comparison, 25% of remuneration packages of company heads in other Asian countries comprised Long-term Incentives (LTIs).
Despite the fact that more Indian companies use LTI as a component of executive remuneration, why is the percentage composition of LTI (10%) lower than their other Asian counterparts? Shanthi Naresh, Principal, Human Capital at Mercer, recognizes this and said "Linkage of pay and performance is not as strong in India as other Asian countries". He further explained that the survey highlighted the need for ‘greater transparency in awarding incentives’.
"Fixed pay is still considered the most important and effective pay component in India and constitutes 58% of total remuneration for the head of the organization" states the survey. However, it does not seem to be the case that Indian companies and their HR policies are not aware of using LTIs.
In fact, 72% of Indian companies use LTIs in the remuneration package of executives. In Asia, only 45% do so. No prizes for guessing that stock options are the most favorite and popular, with a whopping 40% of Indian companies using it as their LTI vehicle. The survey also pointed out that none of the companies are expecting to make any changes in their plans pertaining to LTI.
What about Short-term Incentives? Well the survey found that 87% of Indian companies link individual performance measures to Short-term Incentives (STI) as compared to 72% in Asia. The report also talks about companies aligning STIs with the revenue and profit of the organizations, talking about which, about 63% of the Indian companies that were in the survey expected their profits to rise in 2011. This is something to cheer about despite the fact that the economic outlook for India Inc is uncertain at the moment with a lot going on, both from an international and domestic perspective.
So does India Inc have the correct balance of fixed pay, LTIs and STIs in the remuneration packages of heads of companies? Shanthi Naresh sees room for innovation and said "Growth, leadership shortages and high inflation have boosted India’s executive pay in the past years. There exists an evident need for companies to explore innovative ways to manage and reward executive talent."