IT CEOs' salary: Why the fuss?

In a country with a per capita income of $2,000, a salary worth $10 million or more definitely makes eye-popping headlines. So, when Indian IT companies came out with their annual reports recently, CEOs’ compensations attracted much attention. No wonder, much of the debate is judgmental about how high these pay cheques are and how the median salary package is increasing every passing year.

Interestingly, there are many schools of thought on the matter of CEO compensation. Some argue that in a market-driven capitalist economy, the pay package should be linked to the extent of wealth creation. Others are of the opinion that such disparity between the top level and average employee salaries doesn’t augur well for the healthy growth of enterprises.

As one can see, this is not a black and white debate and there are many shades of grey to this whole discussion. Many experts closely working with the industry for several decades said nuances are much deeper than what meets the eye.

“Basic salary is not that high. Perks are high. If you look at the salary package of CEOs of Indian IT firms, it has a very large variable component. So, they get those packages if the performance is achieved as per set parameters. It is performance-driven and it should stay performance-driven. All the IT CEOs will make good money this year as we have seen a tech boom last year,” Supaul Chanda, vice president of technology recruitment firm Experis of Manpower Group told the DH.

“We also have to understand that CEOs put their necks on the line, devise a strategy, ensure that people follow that plan. The risks and decisions taken by a CEO or top-level executives are very different from others (average employee). If CEOs don’t perform, they may have to lose their jobs. So, it is very much performance-linked,” he added.

Intense global competition

While the debate on fat paycheques of Indian IT salaries rages, a glance at the global technology world shows the trend is very similar. Rather, competition for top talent is intense among the global technology giants. Unless Indian IT firms, which compete globally, don’t pay as per industry norms, attracting global talent will be herculean.

And paycheques of global IT giants are much higher as compared to Indian peers. For instance, Accenture’s CEO Julie Sweet was paid around $23 million, while IBM’s Chairman Arvind Krishna’s salary stood at $17.56 million.

Cognizant’s CEO Brian Humphries drew $19.6 million in 2021, filings showed. In comparison, Wipro’s CEO Thierry Delaporte’s total compensation stood at $10.5 million for FY22, while it was around $10.2 million for Infosys’ CEO.

Market leader Tata Consultancy Services (TCS)’ CEO had a salary package of $3.32 million. The median salary difference over average employee pay varied somewhere between 500-850 times.

“IT industry is more professionally-run than any other industry. Most promoters are in non-executive roles now. So, given the war for top talent, professionals have to be paid higher salaries along with stock options for attracting the best. This was not the case when promoters were running the company two decades back. Right or wrong, Indian IT firms have to compete globally. So, the environment has changed drastically in the last two decades,” said Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting.

“However, companies have to raise the salaries of junior employees like that of their top-level executives. Otherwise, this will become unsustainable. High attrition is one of the reflections that we are witnessing now due to this factor,” he said adding that companies have realised it now and have started raising pay packages for junior employees.

Sources in the know also said that the salary differentials between the CEO and other senior-level employees are also very high.

“There is much bigger heartburn when the CEO gets a hefty package and the number two or three (leaders just below the CEO) gets one-tenth or less. The issue also comes up on how to motivate those second-rung leaders, who actually implement the CEO’s vision,” said an industry source.

Corporate governance

While hefty pay packages become the norm to attract and retain talent, corporate governance officials also said that there is no disproportionate rise in the fixed salary component.

“One has to differentiate between promoter compensation and non-promoter compensation. In some cases, more than 80 per cent of their compensation is linked to performance. If the fixed salary component gets a disproportionate raise, then it is a matter of concern,” said Shriram Subramanian, Founder & MD of InGovern Research Services, a proxy advisory firm.

“The median salary differential is just one of the metrics to determine the CEO salary. In the case of IT companies, currency also plays a role. As compared to other sectors, the median salary difference is not high for the IT sector. What should also be seen is whether the growth in compensation is in commensuration with the performance of the company,” he added.

According to corporate governance officials, there were no instances where the majority of shareholders or institutional investors voted against compensation increase resolutions in annual general meetings (AGMs) of Indian IT firms.

The country has seen several instances wherein large institutions had also voted against resolutions proposing a hefty rise in CEO compensations.

While this unending debate on what is optimum pay package continues, the market economy has its inherent strength of correcting itself. So, if the compensation is high, it will correct itself. Till then, the last line of the famed Wall Street movie ‘The Big Short’ summarises the current trend- “I can feel you judging me.”