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.
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
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