CEO’s Package

CEO’s Package

Some experts believe that the pandemic and economic recession may not dent the wallets of top CEOs as organisations want to retain high-quality critical talent in the driver’s seat.

When the Centre announced nationwide lockdown in the second half of March 2020 to control the spread of the deadly coronavirus, sales and profitability of companies took a hit in the final quarter, which had an adverse effect on CEO salaries as well.

Gagan Banga, CEO of Indiabulls Housing Finance, took 45% cut in his FY20 salary while CEO of Godrej Properties, Mohit Malhotra and Sunil Duggal, CEO of Hindustan Zinc saw their salaries decline by 27.15% and 24.76% respectively.  Many other CEOs of top companies have witnessed similar reduction in their take-home salary due to the pandemic.

According to an analysis done by Economic Times, the average payout for MDs and CEOs, excluding promoters, based on the published annual reports of 100 BSE500 companies, slipped about a quarter of a percentage point as compared to a 5.7% increase in cornor room pay in FY19.

Will CEO salaries plunge further in FY21

Boards, company chairpersons and compensation experts are divided in their view on the future of CEO pay. Some believe that the pandemic and economic recession may not dent the wallets of top CEOs as organisations want to retain high quality critical talent in the driver’s seat to stay afloat in uncertain times.

Companies increasing variable component of CEO compensation

It is learnt that more of CEO pay will be in variable. Some companies are even toying with the idea of a structure where entire compensation could be in variable with an option of monthly withdrawals that can be deducted from total package at year end.  On an average, variable compensation makes up 30-40% of a CEO’s pay. This has increased to 50-60% for FY21.

Experts feel that it is observed that there has been increase of variable in CEO pay in the last few months.  Companies, however, need to do a balancing act. Losing a leader could be an added complication in an already uncertain and exceptional business environment. There has been some degree of C-suite churn over the last 2-3 quarters and companies are keen to ensure that they have the right talent suited for the current business environment.

Going ahead, pay increases will be leveraged more on long-term incentives compared to cash compensation.

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