Senior executive pay is maturing in India: PwC

The Indian market has reached a stage of maturity in some aspects of the executive rewards landscape, according to a recently launched PwC report ‘Navigating the path to maturity’.

The PwC survey was conducted across 42 companies and saw representation from leaders across various industries with varied ownership patterns and listing status.
The report suggests that over the last two decades, Indian companies have strengthened the pay proportion at a relatively slower pace.

At the executive level, pay risk comprises 40% of the package at target, with an even split between short-term and long-term incentive plans. This increase is likely to continue in the near future.

On the findings of the survey, Padmaja Alaganandan, Executive Director – Consulting, PwC India, said:

“The Indian market has reached a stage of maturity in some aspects.

Compensation has grown significantly, but the focus on governance and linkage with performance delivered has not kept pace. Moving towards the next decade, the challenges that companies will face to optimise their compensation programmes will be many.

Segmentation of rewards, and balancing between talent pressures and good governance will be key.

Most important, companies need to stay the course on the signed off executive reward strategy as flux in pay framework is not a good thing for executives or shareholders.”

Other key findings of the report are:

•    Resurgence of equity-linked Long Term Incentives in a lack-luster stock market reiterates the maturity of compensation practices and signals the breaking of the short-term linkage to stock market fluctuations. Another example is that companies are getting 'smarter' in their use of long-term incentives. Today, one can see a more judicious use of equity, both among early adopters as well as late starters as opposed to indiscriminate usage across the board earlier.

•    India compares favourably with the West when it comes to top executive compensation levels. However it fares poorly on executive pay governance on the board agenda.

•    Pay at risk component continues to rise for executive level. At the executive level, pay at risk now comprises around 40% of the package at target, with an even split between short-term and long-term incentive. However pay at risk is still not linked to a robust performance metric in majority of the companies surveyed.

According to the report, over 40% of companies surveyed do not have a performance metric linked to their long-term incentive plan, indicating much scope for strengthening performance linkage.

Also, compensation for top executives is fixed-pay heavy, with 50 to 75% of the total package being guaranteed.  Companies run the risk of incurring compensation costs without the focus on driving desired behaviours and performance goals.