CXO Compensation in India – Current trends

CXO compensation levels in India are headed north, but are still significantly lower than their counterparts in international markets. The recent increase in compensation we are witnessing now is largely due to the demand supply scenario and is more accentuated in certain sectors like financial services, retail, technology enabled services, aviation and life sciences. The burgeoning demand across sectors for seasoned business leaders is pushing compensation to stratospheric levels in the Indian context. Indian corporations are increasingly looking at an extended global pool of candidates for leadership roles.

However, at a larger level, India is still not a first stop destination for top notch global executive talent and is still some distance from being an active participant in the global cross border interplay of talent in most sectors. Due to the unprecedented and sustained growth there is an acute need to attract culturally competent business leaders to India from other parts of the world. But the biggest impediment today is the current size and scale of Indian businesses. Most Indian corporations are still in the process of globalizing their businesses and building size and scale. Though we are moving in that direction it would be unrealistic to expect Indian CXO compensation to be at par with global benchmarks at this point.

Global corporations establishing captive centers in India are also setting new benchmarks on local compensation. Though these benchmarks are significantly higher than local levels still it offers them significant arbitrage operating out of India.

Total compensation including base pay and variable performance pay is largely a function of value delivered by the CXO to the business when measured on various parameters including relative growth vis-à-vis competition. Historically variable compensation in India has remained a small percentage of fixed or base pay with no significant upside. In certain markets variable pay by definition is non linear and in some cases it is even 20-25 times base pay and payable on achievement of laid down business and profitability objectives. Going forward we need to take a closer look on the overall design and structure of CXO compensation in India and incorporate measurable performance metrics and suitably reward hi-performance on a non linear basis. This will go a long way in fostering a business promoter mindset for CXOs as opposed to a key employee mindset.


The other significant aspect of CXO compensation in India is the huge disparity which exists between promoter/owner CXOs and professional CXOs. In the case of multinationals operating in India there is a significant gap in compensation between expatriates serving in India and local managers. The occasional spikes we see in CXO compensation is largely on account of this factor.

With the market dynamics and the economy undergoing rapid change there will be a shift in employer – employee relationships which will alter the compensation philosophy of many organizations. Today most Indian organizations have moved the definition of compensation beyond cash and are building a more holistic package which includes stock plans, performance pay, deferred pay and a slew of exit barriers and of course long term wealth creation opportunities for their key executives. Already stock plans have added significant wealth to senior mangers in the past few years and today are real exit barriers for many of them.

Moving forward, as India Inc globalizes and the business leadership becomes more diverse and multicultural, Indian corporations will have to compete on a global basis for talent. Then we would see a systemic shift and perhaps we could imagine a situation where compensation levels in India would be at par with respective global industry benchmarks.

Well, rather than broadly addressing CXO compensation on US$ terms the scenario will perhaps look different when the figures are adjusted for purchasing power parity and relative size of organizations.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

Understanding Your Compensation

As HR Managers grapple with a serious talent crunch in certain sectors, compensation and wealth creation opportunities for professionals have become the buzz words. Today increasingly organizations are moving away from a ‘one size fits all’ approach and are open to structure compensation to suit the needs of the individual, especially at Senior levels. Hence it is critical for executives to look beyond the numbers and cost to company figures to get a true picture of what is in the store.

Also the other important aspect one should keep in mind is your current compensation and broad industry benchmarks. Compensation offered is often a function of the demand supply situation in your industry and usually organizations use your current compensation as a base for negotiations and factor an increase on the same.

At some level, there is also an assessment of your key drivers for change and usually compensation alone as a key driver is a ‘put-off’ for most organizations. So you need to play your cards carefully to ensure that it is win-win situation for you as well as the hiring organization.

(As you sit down to negotiate/ structure an appropriate compensation for yourself you need to keep the following points in mind.)

Base pay:
You need to see what is the percentage of base pay in the overall compensation. Usually your retirals (PF, Super Annuation, and Gratuity) are a function of your base pay. Base pay is usually around 40-50% of your total compensation excluding variable pay. Also in large organizations, annual increases are effected as a percentage of the base.

Housing:
Companies these days either give a lump sum house rent allowance as part of the overall compensation or provide a company leased accommodation. In larger metros, especially Mumbai, housing is a significant cost and one needs to understand the company policy on deposits for housing. Also the cost would also depend on the location of the house and convenience from work/family perspective.

Flexi Basket allowance:
Companies give a flexible basket allowance which could be structured as per the employee needs under various heads permissible as per the income tax rules. Items like car lease cost, leave travel etc. could form part of this. It is advisable to take the counsel of the company taxation manager or your personal tax advisor while structuring this part.

Variable pay:
You would need to understand the specifics of this head and also understand if there are any minimum guarantees incorporated or performance/ operational parameters on which this payout is dependent on. It is advisable to spend time with both the HR as well as the line managers to understand the downside as well as upside of variable pay and check out a few past trends in the organization. Usually variable pay may range between 50-150% of base pay in some organizations (Again you will see the importance of your base pay!)

Long term wealth creation plans

These days organizations are constantly devising ways to retain their best talent by ring fencing them with long term wealth creation plans in the form of employee stock option plans long term incentives or deferred bonuses.

Employee stock options are granted to selected senior managers of a company on certain terms. They carry the right (but not the obligation) to buy a certain amount of shares in the company at a predetermined price. Normally employees must wait for a specified vesting period before being allowed to exercise the option. The broad idea behind the stock option is to align incentives between the management and the shareholders of a company.

One needs to understand the upside of such plans and suitably factor this in your decision. In the recent bull run, ESOPs have played a key role in creating employee wealth. The downside here is that the company stock price could drop below the exercise price.

Privately owned or unlisted local entities or MNCs also structure shadow/ phantom options for their senior executives. A phantom stock plan gives senior managers a bonus based on the market appreciation of the company’s stock over a certain period of time without actually giving them any company stock. The phantom stock follows the price movement of the company’s actual stock, paying out any resulting profits.

Golden Parachute

Golden Parachute is a clause in the employment contract that provides the executive with a severance package in the event of his/her termination. The clause may include a continuation of salary and perquisites and at times accelerated vesting of stock options. This clause usually is seen more in the case of C-suite executives.

To summarize, though compensation is an important barometer for measuring an opportunity on a short term basis, the decision should be based on the long term potential of the role in question and the impact it makes on your future employability.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

Succession Planning

Long-term measures for succession planning include a robust bottom up hiring strategy focused on campus hiring for fresh management or technical graduates depending on the business. Additionally the organization also systematically hires middle to senior management personnel from competition or from allied sectors. This ensures that managers have enough settling in time before they are ready for critical top management positions. The HR and line leadership need to ensure that the lateral hires are assimilated in the system and become effective hi performing managers.

Job rotation across multiple businesses and functions prepare mangers to take on new roles with ease if there is an exit. This is also critical when the organization is rapidly growing. The company needs hi potential stars for their new initiatives and also need to back fill positions vacated by the current incumbents who are moving on. Larger organizations with multiple businesses and multiple geographies have the ability to offer exciting career growth opportunities to their managers and offer them newer challenges to keep them fresh and charged. This is a great retention tool. Globally GE has been a shining example when it comes to succession planning as well as its sheer ability to produce business leaders. ICICI Bank in India has done extremely well on this front in the Indian context.

There are scores of companies big and small, which have floundered on this front due to a combination of factors. The job market that has seen burgeoning growth in the past few years has opened up newer pastures for managers like never before and retaining and attracting talent is a huge challenge.

HDFC Bank lost key business heads in retail and corporate banking and operations in the past 18 months and the bank has now restructured their teams and spliced the roles to accommodate people from within who are seen to be not yet ready for the bigger jobs.

L&T has suffered over the years as the company has bled talent at the middle management levels and their succession plans have gone awry. This has led to significant graying of their senior and top management teams and consequently the retirement ages for some of their key business leaders including their current CEO has been extended.
ITC and HLL have not been great examples when it comes to inducting and assimilating lateral hires. They continue to be old boys clubs where the laterals if at all there are any getting the shorter end of the stick. But both these organizations have robust bottoms up hiring strategy. Off late this has also suffered because these companies no longer get the fancied day 0 or day1 slots in the best campuses, which now go to consulting firms and Investment banks. Also the companies are beginning to witness significant middle management exits, which will ultimately hit succession plans in the longer term.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

‘Safe Entrepreneurship’

Seasoned executives serving in multinational corporations, either in India or elsewhere have for long driven the global agenda in their areas of operation. In a heavily matrixed global environment they realize that their hands are tied when it comes to driving their agenda and vision in a local context. Decisions are slow to come by and unrelated global events have often led to derailment of their local business plans. Global events, beyond their control have ramifications on local strategy, compensation and even performance bonus which may lead to sense of helplessness & frustration at work. In recent times, inspite of a robust India business, as many senior executives have realized, the global woes of their parent organizations have led to widespread job cuts, pruning of bonus kitties and a major value depletion of their share options.

We are talking of experienced MNC managers hitting such a bump in their careers and are serving in roles which offer very little excitement with limited scope for business and career growth. But the good news is that Indian corporations are pursuing aggressive local as well as international growth opportunities. In addition, there are a slew of private equity firms ready to put their money on accomplished management teams to start up & build exciting new businesses.

By definition, these are roles where the executive drives the agenda and is responsible for shaping their organization’s destiny quite like his/ her own business. The only difference being that there is a support of a larger institution with access to capital upfront, which is not often the case if you are setting up a business on your own. This is what we call ‘safe entrepreneurship’.

As a senior executive, you need to look at the following when you evaluate such opportunities.

1. First and foremost is the credibility of the investor, broad business strategy including committed capital, expected payouts and commitment to stay the course. It is better to plump for institutional investors or large private equity firms as opposed to individual investors who tend to have a shorter term horizon.

2. Evaluate the nature of business, market opportunities and your assessment of your ability to pull it off. As a business leader in this situation, we have seen that executives who have a track record of having built businesses with an ability to ‘woo’ talent have a distinct advantage. The executive must assess his own ability to attract and retain a hi-powered management team for the business. Also, your ability to operate without the ‘air cover’ from a global brand and existing on the ground infrastructure will be put under severe test.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

Retaining and Rewarding Leadership Talent

Retaining and rewarding leadership talent is a hot button issue as organizations are grappling with increasing complexity of hiring leadership talent in the face of burgeoning market demand

Companies are under increasing pressure to retain their top talent as Indian managers are confronted with a plethora of opportunities like never before. Successful organizations have had continuity of leaders at the top as well as a strong pipeline of talent and have managed their critical human resources with care.

It is common for organizations in these times to ring fence their senior executives by devising long term wealth certain opportunities in the form of retention pay, deferred bonus plans, stock options, RSUs, shadow options amongst others. Employee stock plans offered by Indian companies in the past few years have been able to create the right setting with key employees feeling a lot closer to centre of action with a belief that they are making a difference to the fortunes of the organization as opposed to ESOPs in large multinationals where the India business is still a small percentage of their overall numbers. The attractiveness quotient for Indian companies is increasing all the time.

Today we are seeing the emergence of several “employee millionaires”, however, relying on generous compensation as the only strategy for retaining your key resources is a sure shot recipe for disaster. Then what is it? There is interplay of multiple factors which makes the organization being the preferred destination for top talent and creating a long term sustainable employer brand. As we have seen, the best employers are often not the best paymasters.

First and foremost, is to create a sense of ownership and belonging to the organization. Successful organizations have a culture which supports and encourages entrepreneurial behavior, the freedom to make informed business decisions and above all, eliminating the fear of failure.

An ambitious business leader is constantly evaluating headroom for professional learning and growth and it is critical that the organization is capable of creating such opportunities. This keeps senior managers motivated with fresh challenges all the time.

Job rotation across multiple businesses, functions and geographies prepare mangers to take on new roles with ease if there is an exit. This is also critical when the organization is rapidly growing. The company needs hi potential stars for their new initiatives and also need to back fill positions vacated by the current incumbents who are moving on. Larger organizations with multiple businesses and multiple geographies have the ability to offer exciting career growth opportunities to their managers and offer them newer challenges to keep them fresh and charged. This is a great retention tool. Globally GE has been a shining example when it comes to succession planning as well as its sheer ability to produce business leaders. ICICI Bank in India has done extremely well on this front in the Indian context.

Also another innovative retention strategy is to create a unique operating culture and reward exceptional performers with larger responsibilities. Keep your stars ahead of the market curve and give them bigger roles, which your competition cannot offer!
Finally, as organizations realize, employee churn is inevitable given the market forces and as long as it is healthy, it also provides opportunities to rising stars at the top of the pyramid.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

Negotiating your employment contract

In the face of burgeoning demand for senior executive talent, organizations are grappling with increasing complexity of leadership hiring. Increased leadership hiring activity is seen across sectors in addition to leadership demand from several Greenfield and sunrise industries. The Indian senior leadership market is undergoing rapid change and we are witnessing increased cross- sector movement of senior executives. Sunrise sectors like organized retail are lapping up talent especially from the FMCG sector. In the past telecom and retail financial services have drawn talent extensively from FMCG companies. This means companies are under pressure to retain their top talent and also these are challenging times trying to hire leadership talent from outside. Indian Managers are confronted with plethora of opportunities like never before.

At the same time, organizations are ring fencing their senior executives by devising long term wealth creation opportunities in the form of incentives, retention pay, stock plans and deferred bonus plans. Hence leadership hiring today is akin to an M&A transaction in sheer complexity and long term financial and contractual implications for both the company as well as the employee. Organizations today are moving away from a ‘one size fits all’ approach and are structuring compensation and employment contracts as per individual needs. The days of standard templates for appointment letters are gone! At very senior levels, we are seeing the emergence of ‘super lawyers’ who counsel senior executives and negotiate on their behalf. This is an accepted practice in more developed markets like the United States.

Moreover today we are seeking to attract expatriate talent for certain specific skill sets especially in sectors like retail, hi tech manufacturing amongst others. In addition Indian corporations are today dealing with a multi cultural work force as they acquire companies and expand globally. So it is no longer only the spoken word which is important but the employment contract is gaining more significance than ever.

We are also witnessing instances of senior executives walking out of contracts or accepting more than one contract and companies have very little recourse. In a recent instance one company had insisted on a penalty clause in the event the executive reneges on his contract to join the organization. In this case his current employer managed to retain him, but had to pay up the agreed amount on his behalf, to his prospective employer.

So as you contemplate your next move, you need to watch out for the following

* Get a broad idea of the different dynamics in the new sector/ organization. For example, executives foraying into the retail sector (there is a mass euphoria!) need to assess the ability of the company to stay invested long term in a capital and asset intensive industry with wafer thin margins. Also it is important to get a sense of the company’s long term game plan.

* Understand the risks involved in the change from a career as well as a financial standpoint. You need to assess the upside as well as the downside and build suitable protection clauses in your contract. Usually companies are open to incorporate ‘golden parachute’ clauses that provide the executive with a severance package in the event of his/her termination. The clause may include a continuation of salary and perquisites for a defined period and at times accelerated vesting of stock options. This clause is seen more in the case of C-suite executives.

* Organizations in different phases of evolution have different compensation philosophies. Established brand name corporations tend to be less flexible. Here the risks are lower and so is the upside. In case of startups or new businesses especially Greenfield or sunrise businesses the opportunity to create long term wealth exists. Plan for success and ensure that you negotiate a handsome wealth creation plan in the form of pre IPO options, deferred bonus plans and retention pay. These days ‘C’ level executives even insist on a sweat-equity or an equity purchase plan.

* As you will realize by now that the complexity of employment contracts is increasing all the time, understand and clarify every aspect of the contract and if necessary seek counsel. Watch out for the fine print, especially items like ‘non-compete’ clauses and understand your recourse.

* Excessively focusing on compensation and contracts is a ‘put off’ for most organizations. Though compensation is an important barometer for measuring an opportunity on a short term basis, your decision should be guided on the long term potential of the role, the industry and the impact on your future employability.

As executives negotiate even harder to get the bigger slice of the cake, one should keep in mind that corporations are unlikely to tolerate incompetence and non-performance and have every right to demand maximum output. We are seeing that the average tenure spent by executives in organizations is reducing all the time.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

Managing your Ego

According to Marcum & Smith in their new book "Egonomics", ego is the invisible line item in a corporate balance sheet .How we invest ego in the way we work and the return ego delivers to us and the corporation depends entirely on the skill with which it is used. The pervasive power of ego manifests itself in every team conversation, board room debate, strategy, client interaction or employment interviews.

In a job search situation for a senior executive, ego plays a major role on both sides. In our experience it is critical to keep the following in mind to derive a positive outcome for all concerned.

As a Senior Executive

If you are approached by a search firm for a potential opportunity and you have prima facie interest, don't put up a 'hard to get' attitude. It can be easily seen through by seasoned recruiters and does not make you more valuable by any means. On the contrary it can send the wrong signals. Be candid and talk straight and even if you are not inclined at the first instance, be open, listen, absorb, take your time and convey your decision. This approach helps in building lasting positive relationships with the search firm.

Ensure that you maintain a positive ego through out your interaction, this means you don't jump at the opportunity and give an 'available' feeling. You could then be taken for granted in the process and face several rescheduled meetings, middle of the day meetings and so on. Ensure that your self esteem is not compromised. Even if you have exited from your previous company or on a really bad wicket ensure that your body language is not a give away. Be flexible and make a genuine effort in schedule management to make meetings happen. Positive attitude comes before everything else.

As you meet with your potential employers demonstrate your interest at all times even as you seek more information and be clear about your goals and clearly communicate what you want. Most negotiations fall through where there is lack of mutual trust and transparency in discussions. Even if you are aborting the discussions do it with grace and it is important not to burn bridges.

If you are the hiring manager

Even if you have a great employer brand, external or lateral hires need to be wooed in these times. Once you have zeroed in on the right candidate it is the "woo factor" which will determine whether you manage to hire him in your team. Senior executives love to be pampered and must be made to feel wanted in the hiring organization. This is critical especially when his existing organization will deploy all tactics in the book to retain him and he will be under severe pressure.

Respect the candidate, his time and the effort he is making to come and share his experience with you. Ensure he is made comfortable and his confidentiality is not compromised. Even if you do not find him suitable do not disengage abruptly. Hiring managers in successful organizations at times suffer from a huge ego which makes it difficult to appreciate a candidates' point of view and often discussions falter.

Successful leaders devote a major part of their time in identifying and wooing the right people for their organizations, which ultimately will determine the sustained long term success of their enterprise.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm

International Hiring – Challenges for Indian Corporations

As Indian corporations are expanding into new markets, building and competing on a global scale in industries as diverse as manufacturing or services, there are several challenges they face especially when it comes to staffing their international operations.

1. The profile of the workforce is changing for the Indian corporation. These corporations now operating in a global environment must have the ability to attract the best talent across international markets to remain globally competitive. This means, their HR practices and systems have to be benchmarked with the best in the world.

2. Most multinational corporations have followed a model where Greenfield initiatives in International markets have always been led by their own people, i.e. people within their system seconded to new markets on expatriate status. This strategy will work as a starting point, as one needs to be in sync culturally with the senior management team in their global and regional offices. Similarly, Indian companies, if they have the management bandwidth will do good to depute one of their hi-potential managers to new markets. This is also important to ensure that the organizational values and DNA are inculcated in the new country organization. However, there is a need to build a sound second line operating team comprising local nationals. One can take the learning and experience of multinationals who have adopted such models in the Indian context. Some have got it right while many have floundered due to overemphasis on expatriate talent and have failed to appreciate the local pulse and culture of the marketplace.

3. Different markets function differently and one needs to have a sound understanding of the local nuances in even the so-called simple things like an employment contract! For instance, in markets like the USA, most senior candidates usually consult specialist lawyers to help draft employment contracts with clauses which are usually unacceptable in the Indian context. For example, In Canada it took us almost a month to negotiate and seal such a contract and that too after hours and days of deliberations on several clauses! Whereas in certain markets like Russia candidates tend to change jobs too often and to our surprise, can come on board almost instantly, reflecting the churn in developing economies. The easier they come, the easier they go!

4. Indian ethnic population is widespread in various parts of the world and at times is a sound strategy to hire local Indians who are culturally in tune with either side. This approach can work well in places like UK, USA or Canada where there is a huge ethnic Indian community. But this being the stated strategy can run you into trouble as these are societies which are essentially built on the tenet of equal opportunity. It is also important that you are not seen as a 'brown office' which will impair the ability to attract local talent in the larger context. Also several countries have specified a percentage cap on expatriate mangers and have a rigorous process in place for expatriate manager approvals.

5. As an unknown entity in an alien market the company needs professional support and advice in terms of local practices including various regulatory issues. The problem can be more acute in markets where English is not the main language of business especially in Latin America, parts of Europe or markets like Russia where the regulatory environment and bureaucracy can be stifling. Among other things at the start up stage it is critical that the Indian company has access to sound advice on formulating a hiring strategy for the market, which will be a key factor in determining the success of the enterprise.

6. In the long term, the Indian corporation has to create an employer brand if it has to attract serious talent in alien markets at reasonable market benchmarked compensation. Specifically, to get off the ground in terms of staffing, Executive search firms which have a sound understanding of the client from an India perspective and also with a local presence in respective markets can ensure appropriate positioning of the organization and the opportunity. It is also important for the executive search firm to transfer the touch and feel know-how (especially the cultural context) of the Indian corporation to its local partners in respective countries and work seamlessly with them.

- K Sudarshan

The author is Managing Partner – India, EMA Partners International, A Global Executive Search Firm