February 5, 2012

Rise in India's per-capita income is fine, but it is nothing compared to rise in a CEO's salary

India's robust economic growth may have led to a sharp rise in per capita income in the recent years, but the earnings of the country's top business executives has risen even more sharply.

As per an analysis of the income data provided by the government and the private sector, the country's per capita income grew by 15.6% in 2010-11, but the rise in top management remuneration of the listed companies during that fiscal was twice as much at over 36%.

Increase in the overall employee costs of the listed companies was, however, much closer to the country's per capita growth and rose by 18.6% in 2010-11.

While some experts do not see any correlation in the per capita income and the salaries of the top executives and say it may not be proper to compare the two, a few others believe that the soaring managerial remuneration could be providing a boost to the country's overall per-capita income levels.

The government data last week showed that the country's per capita income cross Rs 50,000-mark for the first time, to Rs 53,331 a year, in 2010-11.

In comparison, the average CEO or top-level management salaries in India are estimated at Rs 1-3 crore, although the remuneration levels vary sharply based on the industry type, business size and various other parameters.

The average salary would be much higher for the top-paid executives. As per the salary data disclosed by the companies, the average salary of 25 top-paid Indian executives in 2010-11 stood at about Rs 33 crore.

Beyond the remuneration income, the wealth of the country's richest persons runs into thousands of crores, but these figures take into account various assets including value of shares in the companies promoted by them.

"The salary of CEOs is such a small proportion of the country's per capita income. Even theoretically, CEO salary and per capita income are two different unrelated variables," Krishnamurthy Subramanian, Assistant Professor (Finance) at Hyderabad-based Indian School of Business (ISB) told PTI.

"The compensation of CEOs has increased (in recent times), especially in large size companies as compared to small and medium-sized firms," he said.

Subramanian noted that the increase in the CEO salaries could also be attributed considerably to the stock markets, since most of the large companies have stock-based compensation for their top executives.

"Performance-based compensation has emerged as the major trend," he added.

Executive search firm EMA Partners International Ltd Managing Partner (Asia Emerging Markets) K Sudarshan also said that the CEOs were too small a percentage of the population to make an impact on per capita income of the country.
However, emergence of new industries like BPO and growth of services sectors like banking and finance has indeed helped in creating new employment opportunities, giving a boost to the per capita income levels, he added.

Executive search firm GlobalHunt's Director Sunil Goel, however, said that rising executive pay is definitely boosting the per capita income, and was also related to factors like inflation and higher cost of living in metros.

"Our executives are competing at global platform and had substantial growth in compensation in 10 years," he added.

From a level of Rs 35,825 in the fiscal year 2007-08, the per capita income has risen by almost 50%.

The total salary cost of the BSE-500 firms (broadly the top 500 listed companies in the country) has grown by over 60% in these three years, while the rise has been over 70% for their top management remuneration.

As per the annual reports of the BSE 500 companies, their total employee cost was Rs 2,38,489 crore during 2010-11, as against Rs 1,46,089 crore in 2007-08.

On the other hand, their managerial remuneration, which consists of salaries paid to CEOs, directors and other senior executives, rose to Rs 2,613 crore in 2010-11 from Rs 1,544 crore three years ago in 2007-08.

The annual growth in total employee costs for these companies was 18.6% in 2010-11, while the rise in managerial remuneration was 36.7% in the same year.

Interestingly, the growth rate has bounced back after a brief slowdown in 2009-10 in the managerial remuneration and total employee costs, as also the country's per capita income.

The managerial remuneration had grown by only about 9% in 2009-10, when increase in total employee cost was 12% and the per capita income had risen by 13%.

Brokerage firm Ashika group's Paras Bothra said the listed companies' staff cost in last three years was almost in tandem with the rise in per capita income of about 15% compounded annual growth rate, but it was difficult to correlate the same with the managerial remuneration.

GlobalHunt's Sunil Goel said that the average CEO salary in India in 2010-11 was estimated at Rs 1.5-2 crore per annum. While salaries were on higher side in sectors like banking and financial services, IT, telecom and consumer goods, it was relatively lower in automotive, media, advertising, education, manufacturing, agriculture and infrastructure segments.

"In 2010-11, on an average, the junior manager's salary was between Rs 15-20 lakhs and senior manager's compensation was between Rs 30-40 lakhs," he added.

EMA Partners' K Sudarshan said the executive remuneration could have gone by by 6-10 times in the last 10 years across the board, including the managerial staff.

"The managerial staff who were getting Rs 40-50 lakhs 10 years ago, are drawing Rs 2-3 crores today," he said, adding that this would have had an impact on the per capita.