Executive Compensation
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Transcript of Executive Compensation
CEO Compensation
Indian Institute of Foreign TradeEPGDIB-2013-15
Group-7Swapan Koley
Ranajit PanIndrojyoti Mondal
Introduction
Executive Compensation is the compensation paid to executives of business corporations
Short supply of good executivesOrganizations competing with each other to
attract, retain and motivate managers for their strategic requirement
Elements of Executive Compensation
Higher managerial post are – CEO,presidents, vise-presidents, directors, general manager, etc
Managerial compensation of such positions comprises of 4 elements:
1) Salary 2) Bonus 3) Long Term Incentive 4) Perquisites
SALARY Salary determined through job evaluation and
serves as basis for other benefits Job evaluation plays only a part for managerial
compensationManager is paid for his capabilities and for job he
performs Norms of wages and salary fixation are generally
not observed while fixing salary of manager Salary of managers varies by the type of job , size
of organization, region of the country and type of industry .
BONUS or PROFIT SHARING
This type of incentive is annual and based on company performance or profit sharing
There are many bonus system as there are companies using this form of managerial remuneration
In some system annual bonus tied to share returns on investments
Other bonus plans are based on subjective judgments of board of directors and CEO’s
Managers deserve bonus because they have much more stakes to influence organizational success than non-managerial staff
LONG TERM INCENTIVES/STOCK OPTIONS
If bonus are short term benefits , stock options are long term benefits offered to managers
Companies allow managers to purchase their shares at fixed price
Stock options valuable as long as price of share keeps increasing
PerquisitesSpecial benefits for executives usually non-cash items: - Companies provide health club memberships with
personal trainers- Discounted company products- Automobiles - Country club memberships - First class airfare or use of the corporate jet- Executive health plans- Personal car service- Personal computers and cell phones- Entertainment- Financial planning assistance
Unique Feature of Executive compensation Executive remuneration cannot be compared
to wage & salary schemes meant for non-managerial employees
Executive are denied the privilege of having unions and collective bargaining
Their competence and contribution are the strengths for determining their pay package
Secrecy is maintained in respect of executive remuneration.
No two executives in private sectors, in same grade receive same pay
Compensation and reward depends upon such factors as competence , length of service , contributions, and loyalty to the company
Unique feature of executive compensationexecutive pay is based on organizational
performance
Executive’s own performance directly reflected in corporate performance
Monthly salary may vary from Rs 50,00,000 to 100,00,000 subject to limit fixed per annum
Exorbitant amounts are paid to executives in some organizations.
annual salary of CEOs’ range from Rs 50 lakhs to few crore
Why Executive Should Be Paid MoreExecutive’s success is the means by which
organizational goal is achievedFinancial reward is a symbol of executive’s role, its
power , its dignity and its freedom Organisation pay heavily to attract and retain
talented and competent manager Manager may be motivated sometimes for better
performance through money Lifestyle of executive needs considerable amount
of money For manager financial reward is symbol of social
prestige and position High compensation is made to executive to
eliminate or minimize corruption .
BENEFITS FOR EXECUTIVES Retirement benefits Health insurance Vacations Health plans with no payments by
executive and no limitations are popular among small and middle sized business
Deferred compensation offers another possible means of helping executives to overcome tax liabilities
BenefitsBenefits generally comprises of : - Furnished or unfurnished company owned or
leased accommodation- Use of company owned or leased vehicle - Medical coverage - Provident fund - Pension- Superannuation gratuity- Post retirement medical assistance - Easy loan scheme for utility items , vehicle or
furniture - Renting employee owned housing- Club entrance fee reimbursement
BenefitsMinor benefits could be: - Provision of security - Drivers- Gardening assistant- Sales of products or assets at the concessional
rate- Relocation and transfer expenses including
admission fees for children - Credit card fees, - Phones
New Trend
Most of the companies are now moving away from traditional compensation package: basics, DA, HRA etc. to cost to company basis
Companies are talking in terms of gross salary and asking managers to do their own tax planning.
Trend is to move away from seniority and hierarchy system and attach value to performers
New TrendSome companies give executives freedom to
design package keeping in view of total cost ( assuming Y/N??)
Flexibility is given to executives to choose their lifestyles within certain parameters
Performance linked payments , bonus, generous increments and merit pay are given
Concept of star performers are gaining ground Lifestyle perks (good accommodation, club
membership, liberal furnishing, holiday abroad with family ) continues to be the practice
New Way of Pay Organizations are increasingly linking their
variable pay plans to individuals, teams and organizational performance
Individual/team performance based profit sharing, productivity based individual/team profit sharing, productivity based incentives, stock options and ownership and other customized schemes
Companies have leveraged the variable pay to aggressively position their top performer at the top end of the market
New Way of Pay
Companies are experimenting with “cost to company "concept , with focus on high compensation structure
New & emerging sectors like retail , telecom, aviation & IT/ITES with younger employees adopt ing simplified pay structures
With flexible pay structure employee can choose from defined items of pay and optimize his own tax planning
This has gained acceptance and providing flexibility to employee and tax compliance to organization
INDIAN PRACTICES
Executive compensation in India built around three important factors:
Job complexity
Employers ability to pay.
Executive human capital
PRIVATE SECTOR vs. PUBLIC SECTORThe salary of top executives of public sector
are miserable compared to private sector:S B I chief is paid 10 % of HDFC Bank
Managing Director BHEL’S chief is getting about 25 to 30 lakhs
perannum as against Asea Brown Boveri’s (ABB) MD getting nearly 60 to 70 lakhs
Top 5 Indian CEO’s Salary
Name of Exect. Salary ( Rs. Crore) Company
Naveen Jindal 69.757 Jindal Steel & Power
Kalanithi Maran 37.08Sun TV Network Limited and SpiceJet.
Pawan Munjal 30.88 Hero Honda.
Onkar Kanwar 29.69 Apollo Tyres.
Kumar Mangalam Birla 28.467 Aditya Birla Group.
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