CEO Pay Surges Amid Layoffs: Survey Reveals 40% Compensation Boom

As employees fortunate enough to remain anticipate appraisals and promotions, typically scheduled between May and July in the Indian corporate world, the spotlight now shifts to CEOs. This transition follows a period marked by  layoffs, indicative of cost-cutting measures or restructuring efforts. Alongside heightened scrutiny and expectations, CEOs may find themselves presented with new benefits and opportunities for advancement or compensation.

Against the backdrop of widespread layoff reports in major tech companies, an unexpected revelation emerges: a surge in CEO pay in India. Within a landscape shaped by economic turbulence and evolving corporate dynamics, the Deloitte India Executive Performance and Rewards Survey 2024 offers illuminating insights into CEO compensation trends, shedding light on the evolving dynamics of corporate leadership remuneration and performance evaluation strategies.

CEO Compensation Soars, Reflecting Economic Resilience

According to the survey, the average compensation for CEOs in India stands at a robust INR13.8 crore in 2024, marking a substantial 40% surge compared to pre-COVID-19 levels. Notably, every second CEO now commands a target compensation exceeding INR10 crore, signifying a notable shift from the scenario witnessed in 2020, where this threshold was met by every third CEO. Particularly noteworthy is the compensation disparity between promoter and professional CEOs, with the former garnering an average of INR16.7 crore, indicating a notable divergence in remuneration strategies.

Homegrown Talent on the Rise: Six in Ten CEOs Are Internally Appointed

The study delves into the dynamics of CEO transitions, revealing that 45% of BSE 200 companies underwent CEO changes over the past five years. Intriguingly, six out of every ten new CEOs were internally appointed, underlining a growing preference for nurturing homegrown talent. However, external hires continue to play a significant role, comprising the remaining four CEOs, showcasing a balance between internal talent development and external expertise infusion.

Anandorup Ghose, Partner, CHRO Programme Leader, Deloitte India, said, “Promoter CEO compensation outpacing professional CEO compensation is primarily driven by two factors. Professional CEOs change more often than promoter CEOs due to the longer tenure of promoter CEOs at an aggregate. But it is also important to note that the range of promoter CEO compensation is very wide, and that affects the higher averages.”

Risk and Reward: CEOs Navigate Pay-At-Risk Landscape with Over 50% Compensation Subject to Performance Metrics

Anandorup Ghose, Partner and CHRO Programme Leader at Deloitte India, highlights the nuanced factors influencing CEO compensation dynamics. The study underscores the increasing prevalence of pay-at-risk, with over 50% of target compensation subject to performance contingencies. Professional CEOs emerge as frontrunners in this regard, with 57% of their compensation at risk, predominantly driven by long-term incentives, notably share-linked plans.

Beyond Numbers: Deloitte Study Sheds Light on Shifting CEO Performance Evaluation Paradigms

The report delineates a paradigm shift in the assessment and reward mechanisms for CEOs and CXOs, emphasizing a holistic approach encompassing both financial and non-financial metrics. While financial goals continue to dominate incentive structures, a discernible trend towards a more structured bonus payout system is observed, accompanied by a decline in discretionary compensation decisions.

“Large Indian companies with more mature and globally aligned compensation practices are pivoting towards Performance Shares and use of multiple incentive plans for different employee cohorts. Conversations in the boardroom have also shifted from the need for share-based payment to the return from these incentive structures to stakeholders.” adds Anandorup Ghose.

From ESOPs to Performance Shares: How CEO Compensation Structures Are Evolving

A notable trend identified in the report is the increasing adoption of share-based incentives, with 75% of companies embracing this mechanism in 2024, compared to 63% in 2020. However, the prevalence of stock options, or ESOPs, has witnessed a decline, dropping from 68% to 49% over the same period. This shift reflects a growing emphasis on aligning compensation structures with shareholder interests and maximizing returns on incentive investments.

The Deloitte India Executive Performance and Rewards Survey 2024 offers a comprehensive overview of the evolving landscape of CEO compensation and performance evaluation in India. As businesses navigate through a complex and dynamic environment, the findings underscore the imperative for organizations to adopt agile and nuanced approaches to talent management and reward systems, thereby fostering sustainable growth and stakeholder value creation.