highest paid executives

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54 BUSINESS INDIA November 29, 2009 W e were wrong. While compiling the list of India’s highest paid executives last year, Business India found it difficult to believe that Indian pro- moters would pay themselves less in a slowdown. “…downturn or no down- turn, the highest salaries will see little difference next year”, was our confi- dent, if cynical, prediction. Boy, were we off-beam. Not only did some pro- moters take significant pay cuts, a few even awarded themselves zero salaries for 2008-09. The most talked about downshift came from the big daddy of India Inc himself: Mukesh Ambani. A few weeks ago, India’s richest man voluntarily reduced his overall compensation by 66 per cent – from Rs44 crore in 2007- 08 to a self-imposed limit of Rs15 crore for 2008-09. But three weeks before his elder brother’s “personal example of moderation” took him off Business India’s list of the 10 top earners for the first time since the survey started in 2002, Anil Ambani had already walked the talk – he took no salary or commis- sions for 2008-09 from the five listed companies he heads. Of course, at these levels, no salary doesn’t mean no money: the younger Ambani has moved to the top of the list of India’s highest paid, thanks to the Rs52 crore he collected in 2008-09 as commissions for the previous year. Not only is that a new high for the list- ing, it is also the first time Anil has edged ahead of Mukesh. The Ambani brothers weren’t alone in their austerity, although they are in a class of their own when it comes to scale. Wipro chief Azim Pre- mji reduced his annual compensation by 10 per cent, even as pay packages for the group’s senior executives went up. (Incidentally, at Rs2 crore and more, Suresh Vaswani and Girish Paranjpe already earn more than Pre- mji’s Rs1.99 crore). Madras Cement’s P.R. Ramasubrahmaneya Rajha, Onkar Kanwar of Apollo Tyres, Hin- dustan Construction’s Ajit Gulabc- hand, JSW Steel’s Sajjan Jindal, Bharat Forge’s Baba Kalyani, J.C. Sharma of Sobha Developers… all took pay cuts in either salary and/or commissions and performance bonuses. Monthly cheques were lighter by 25 per cent for the chief executive and opera- tional heads at Jet Airways and the top bosses at NIIT; senior executives and heads at the B.K. Modi-controlled Spice Group also reportedly saw drops in their total compensation, ranging from Rs5 lakh to Rs25 lakh; and vari- able pay was either dropped or slashed for top management at a number of companies, including Infosys and ICICI Bank. “Last year, many man- agers at senior levels took pay cuts, as did some large owner-managers,” agrees P. Thiruvengadam, senior director, management consultancy services, Deloitte Touche Tohmatsu. As in previous years, the top earn- ers in India are promoter-managers: 64 of the 100 highest paid executives are either the controlling sharehold- ers or members of the family that started their companies. For many of them, the lion’s share of their earn- ings comes not from salary, but from corporate results-linked commissions and bonuses. Madras Cements’ Rajha earned just Rs12.21 lakh last year; the rest of his earnings of Rs28.28 crore was from commission. Similarly, more than Rs20 crore of Naveen Jin- dal’s earnings of Rs28 crore is from commission. There were notable exceptions, of course: the Marans, Sunil Bharti Mittal and Malvinder Singh took no commission at all. And while these numbers appear huge to the average salaryman, they’re almost pocket change com- pared to what some of these owner- executives could potentially earn and to what they pocket as (tax-free) divi- dends. The Ambanis have a 49.03 per cent stake in RIL, which this year How many zeros in that? Last year’s financial crisis hit senior executives where it hurt the most – their wallets. Still, Business India’s list of the country’s top earners scaled new heights TOP 10 Rank Name Company Salary 09 1 Anil Ambani ADAG GROUP 5204.20 2 Kalanithi Maran SUN TV 3708.00 3 Kavery Kalanithi SUN TV 3708.00 4 P.R. Ramasubrahmaneya Rajha MADRAS CEMENTS 2871.43 5 Naveen Jindal JINDAL STEEL & POWER 2827.93 6 Malvinder Singh RANBAXY 2371.83 7 Sunil Bharti Mittal BHARTI AIRTEL 2089.66 8 Vivek Jain GUJARAT FLUORO 2073.31 9 Gautam Adani ADANI GROUP 2002.94 10 Brijmohan Lall Munjal HERO HONDA 1979.28 (Rs lakh)

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Page 1: Highest Paid Executives

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B U S I N E S S I N D I A November 29, 2009

We were wrong. Whilecompiling the list ofIndia’s highest paidexecutives last year,Business India found

it difficult to believe that Indian pro-moters would pay themselves less in aslowdown. “…downturn or no down-turn, the highest salaries will see littledifference next year”, was our confi-dent, if cynical, prediction. Boy, werewe off-beam. Not only did some pro-moters take significant pay cuts, a feweven awarded themselves zero salariesfor 2008-09.

The most talked about downshiftcame from the big daddy of India Inchimself: Mukesh Ambani. A few weeksago, India’s richest man voluntarilyreduced his overall compensation by66 per cent – from Rs44 crore in 2007-08 to a self-imposed limit of Rs15 crorefor 2008-09. But three weeks before hiselder brother’s “personal example ofmoderation” took him off BusinessIndia’s list of the 10 top earners for thefirst time since the survey started in2002, Anil Ambani had already walkedthe talk – he took no salary or commis-sions for 2008-09 from the five listedcompanies he heads.

Of course, at these levels, no salarydoesn’t mean no money: the youngerAmbani has moved to the top of thelist of India’s highest paid, thanks tothe Rs52 crore he collected in 2008-09as commissions for the previous year.Not only is that a new high for the list-ing, it is also the first time Anil hasedged ahead of Mukesh.

The Ambani brothers weren’talone in their austerity, although theyare in a class of their own when itcomes to scale. Wipro chief Azim Pre-mji reduced his annual compensationby 10 per cent, even as pay packagesfor the group’s senior executives went

up. (Incidentally, at Rs2 crore andmore, Suresh Vaswani and GirishParanjpe already earn more than Pre-mji’s Rs1.99 crore). Madras Cement’sP.R. Ramasubrahmaneya Rajha,Onkar Kanwar of Apollo Tyres, Hin-dustan Construction’s Ajit Gulabc-hand, JSW Steel’s Sajjan Jindal, BharatForge’s Baba Kalyani, J.C. Sharma ofSobha Developers… all took pay cutsin either salary and/or commissionsand performance bonuses. Monthlycheques were lighter by 25 per centfor the chief executive and opera-tional heads at Jet Airways and the topbosses at NIIT; senior executives andheads at the B.K. Modi-controlledSpice Group also reportedly saw dropsin their total compensation, rangingfrom Rs5 lakh to Rs25 lakh; and vari-able pay was either dropped or slashedfor top management at a number ofcompanies, including Infosys andICICI Bank. “Last year, many man-agers at senior levels took pay cuts, asdid some large owner-managers,”agrees P. Thiruvengadam, seniordirector, management consultancy

services, Deloitte Touche Tohmatsu.As in previous years, the top earn-

ers in India are promoter-managers:64 of the 100 highest paid executivesare either the controlling sharehold-ers or members of the family thatstarted their companies. For many ofthem, the lion’s share of their earn-ings comes not from salary, but fromcorporate results-linked commissionsand bonuses. Madras Cements’ Rajhaearned just Rs12.21 lakh last year; therest of his earnings of Rs28.28 crorewas from commission. Similarly,more than Rs20 crore of Naveen Jin-dal’s earnings of Rs28 crore is fromcommission. There were notableexceptions, of course: the Marans,Sunil Bharti Mittal and MalvinderSingh took no commission at all.

And while these numbers appearhuge to the average salaryman,they’re almost pocket change com-pared to what some of these owner-executives could potentially earn andto what they pocket as (tax-free) divi-dends. The Ambanis have a 49.03 percent stake in RIL, which this year

How many zeros in that?Last year’s financial crisis hit senior executives where it hurt the most – their wallets.

Still, Business India’s list of the country’s top earners scaled new heights

TOP 10 Rank Name Company Salary 09

1 Anil Ambani ADAG GROUP 5204.20

2 Kalanithi Maran SUN TV 3708.00

3 Kavery Kalanithi SUN TV 3708.00

4 P.R. Ramasubrahmaneya Rajha MADRAS CEMENTS 2871.43

5 Naveen Jindal JINDAL STEEL & POWER 2827.93

6 Malvinder Singh RANBAXY 2371.83

7 Sunil Bharti Mittal BHARTI AIRTEL 2089.66

8 Vivek Jain GUJARAT FLUORO 2073.31

9 Gautam Adani ADANI GROUP 2002.94

10 Brijmohan Lall Munjal HERO HONDA 1979.28

(Rs lakh)

Page 2: Highest Paid Executives

declared a dividend of Rs13 for everyshare, as well as a bonus share issue:that’s more than Rs1,000 crore in div-idend to the company’s promoters.Sun TV’s Kalanithi Maran owns 77 percent of the southern-based mediagroup, while Premji holds 79.32 percent in Wipro.

Even if you’re not a promoter, itwould still pay to work in an Indiancompany. In the past decade or so,compensation levels in Indian compa-nies have come on par with, and insome cases outstripped, multinationallevels. That’s only fair, according to HR

consultants. “The CEO of an MNC inIndia is just a country manager,” says atop recruiter. “Consider the jobs interms of scale, span, strategy, the levelof freedom in decision-making andindividual growth prospects – there’sno comparison at all.”

The size of the role and the size ofthe pay cheque aren’t the only advan-tages of being part of the top team atan Indian company. “Salary struc-tures are fairly similar, but differencesshow up in ‘benefits’. Some Indiancompanies offer excellent retirementbenefits, which become an importantconsideration for people in their 50s,”adds Madhav Sharan, regional marketleader of the industry practice, AsiaPacific, at executive recruitment firmKorn/Ferry International.

Multinationals still score higher

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Sometimes the more interesting nameson a list are the ones that aren’t on it.

And while it’s difficult to authenticateinformation on those that didn’t make thelist of highest-paid executives, anecdotalinformation is often more interesting thanfact. Take Cyrus Poonawalla, CMD, SerumInstitute, for instance. With a net worth of$1.5 billion, the horse-racing enthusiastrecently admitted in an interview that oneof the reasons he did not take his companypublic was that the corporate governancelaws a public company is under are stricterand it would imply a constraint on his pas-sions – planes and cars.

Poonawalla is perhaps among the fewwho admit it, but there are several otherowner-executives of private companieswho debit their lifestyles to the firm. Anopen secret is the doings of a public com-pany that’s Rs6,000 crore deep in debt,but which multiplied its chairman andmanaging director’s salaries 10 times,funded Rolls-Royce cars and Rolexwatches for their families and even spon-sored a high-profile fashion event recently.

Not everybody is that lucky. For themain part, salaries didn’t take a hit lastyear – although the MD who took a 40per cent hit in his $800,000 pay packageis now an urban legend – but the melt-down’s impact on bonuses may yet con-tinue. Foreign I-bankers, whose bonusesare typically multiples of their annualfixed salaries, are yet to recover from the75 per cent cut they faced last year. AndSunit Mehra, managing partner, HuntPartners, a recruitment firm, warns thatthe worst is yet to come. “Last year, thebonuses were just about okay becausethe downturn hit towards mid-year. Thisyear will be even worse,” he says. Theexception: Citi, which has apparentlybeen handing out mid-cycle increments.

Even private equity (PE) players (usu-ally the best paid, those who manage $1billion or more making $1 million or evenmore) received less-than-lavish packagesat the top levels. According to a 2009study of PE compensation by Hunt Part-ners, most senior PE professionals got 10-15 per cent less than usual, while those at

associate and senior associate levels wereless affected. The lower salaries werebecause of fewer deals and no incomefrom carry, since no disinvestments weremade. Not that the big numbers werecompletely absent. Shweta Jalan isrumoured to have been offered $1 mil-lion to move from ICICI Ventures toAdvent; Sanjay Nayar is said to havemade the shift from Citi to KKR for $5 mil-lion, while fund managers at Templetonand Fidelity were reportedly paid inexcess of Rs2 crore last year.

Typically, Indian PE firms pay less thanbig global names, but Archana Hingo-rani, CEO and MD, IL&FS, made Rs4.17crore last year, while Luis Miranda, CEO,IDFC PE, reportedly took home Rs2.8crore. That fits in with R. Suresh’s belief.“Equity fund managers are typically notaffected at any stage of the boom-and-bust cycle,” says the MD of Stanton ChaseInternational.

What about private banks? The guide-lines of the Banking Regulation Act aren’tspecific, but the RBI has the right to scruti-nise and even cap senior-level salaries atIndian banks. It used those teeth earlierthis year and objected to the compensa-tion decided for three senior bankers,including Shikha Sharma, who was join-ing Axis Bank as CEO. At Axis, Sharma willdraw a salary of Rs1.25 crore in additionto ESOPs, car, telephone, provident fund,gratuity pay, official entertainment and ahousing allowance of Rs48 lakh.

Aditya Puri of HDFC Bank and RameshSobti of IndusInd Bank apparently makesimilar amounts in base pay. Director-level employees at the newly-launchedAxis Bank brokerage arm as well as Kotakmake around Rs30-35 lakh, while those atnationalised banks like Union Bank don’tearn more than Rs20-27 lakh (includingperformance-linked bonuses). The onlysaving grace is that Indian banks are gen-erous when it comes to stock options.

Foreign banks aren’t subject to anyRBI-imposed limits – and it shows.Deutsche is said to be the best paymaster– MD & CEO Gunit Chadha reportedlymakes $6-8 million, while Standard Char-

The people minting money

Page 3: Highest Paid Executives

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tered brings up the rear. “Newer bankslike Barclays and CSFB upset the industryaverage by paying outrageous sums toattract the best in the industry,” says a for-eign bank source.

Ravinder Singh moved to Barclays asdirector for Rs90 lakh, double what hewas making at BNP; Sunit Jain made theswitch, also as director at Barclays, forRs95 lakh, up from the Rs35 lakh thatKotak gave him. But banks and financialservices have a norm that employeesshould earn for the company 3-5 timestheir salaries, not always an easy task.

The compensation structure at con-sultancies is different. Salaries are peggedto global standards (at partner level andabove), and bonuses are a smaller per-centage (around 20 per cent) of totalcompensation. Director-level pay at McK-insey, Boston Consulting Group and Bainis said to be close to $1 million (includinga share of revenue), while some long-timedirectors, like McKinsey’s India head AdilZainulbhai, may make several times thatamount. There were reportedly no salarycuts last year, but many consultancies puta freeze on salaries and slashed luxurieslike business-class travel, team dinners at five-star hotels and company-sponsored retreats.

According to sources at McKinsey, the‘sitting on the beach’ (unstaffed employ-ees) rate was 25-30 per cent last year, upfrom the average 5 per cent. The outlookimproved after the general elections inApril and more companies expressedtheir willingness to invest afresh: so much

so that 40-50 new recruits, who were ini-tially to join in May-June 2009 and hadbeen pushed back to January-March2010, have now been rescheduled to startbetween October and December 2009.

Unfortunately, advertising agenciesare yet to see the light at the end of theirtunnel. The past six months have seen a10-15 per cent decline in revenues acrossthe industry, resulting in no salary incre-ments for fiscal year July 2009-June 2010.While the average CEO/MD in advertisingmakes about Rs2 crore, those on globalboards such as Piyush Pandey and

Prasoon Joshi can make close to Rs5 crore,exclusive of stock. Interestingly, the starpatrons of advertising – Coca-Cola andPepsi – had a ‘bonanza year’, according toan industry insider, with hefty bonusesthat are typically linked to various key performance indicators (KPIs) and salaryincrements.

Senior executives at other FMCG com-panies, such as Reckitt Benckiser, Procter& Gamble and Nestlé, too had a goodyear, earning up to Rs3 crore. “FMCG

companies have been less affectedthrough this downturn with more stablecompensation levels,” says Arjun Srivas-tava, leader of the consumer practice atexecutive recruitment firm Egon Zehn-der. “Many of them had their best years,”he adds. The difference is that senior-levelcompensation has become more perfor-mance-linked. “The annual variable com-ponent has become a larger portion of total compensation, which is the nat-ural thing for organisations to do,” says

Srivastava. What did get affected was thebonus payout at MNCs (since it is peggedto a worse-hit global standard), as well asstock options linked to performance,since the stock value has suffered.

The dark horse in the compensationpackage race is the traditionally less-capi-talistic, more recession-proof legal profes-sion. According to a partner at a leadinglaw firm, “There has been an exponentialgrowth in lawyer remuneration, in partdue to an increased number of young peo-ple in the profession who are more money-savvy and have brought some glamourback into the industry.” While partners atlaw firms like Amarchand and Zia Modymake Rs10-15 crore, independent coun-sels often make more money. Harish Salve,allegedly India’s highest paid counsel,charges close to Rs50 lakh a day to appearin court (he apparently files an income taxreturn for Rs30 crore). And, if rumour is tobe believed, RIL signed him on on a retainerof Rs25-30 crore for the gas dispute.

Even others like Dushyant Dave,Mukul Rohatgi, as well as politicians like P.Chidambaram, Arun Jaitley and AbhishekSinghvi, used to charge Rs2-3 lakh for anappearance in the Supreme Court (theycould make up to 10 such appearances ona good day). And with the maturing ofthe industry in India and an increase in thenumber of lawyers (from 600,000 in 2004to 1 million in 2009), compensationstructures have started changing, withgreater variable components as well asinclusion of perks like foreign trips, chil-dren’s education, etc.

India’s reluctant capitalism has yetagain brought ostentatious compensationpackages to the fore. While some compa-nies are realising the difference betweenluxury and sheer excessiveness, they areprobably the exception and not the rule.The question remains whether mutedcompensation packages are simply reac-tions to a lacklustre financial year andincreased public outrage, or a premonitionof commensurate, more conservativelifestyles. That said, we don’t subscribe togovernmental or moral policing of execu-tive salaries; equilibrium is best achieved ifleft to the environment – even if thatmeans a few slips along the way.

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than Indian companies when itcomes to selecting women for topjobs. Headhunters and HR consultantspoint out that the reason there are sofew women in the list of top earners isbecause there are so few women atsenior levels, not because they arepaid less than their male colleagues.“In family-owned businesses, thereare fewer chances of women reachingthe top. But look at the private bank-ing sector – there are so many womenin positions of power,” says R. Suresh,managing director of executive searchfirm Stanton Chase International.

So high, so fast?You won’t find Kalpana Morparia,Shikha Sharma, Naina Lal Kidwai,Vishaka Mulye, or Falguni Nayar inBusiness India’s list. The names in thefollowing pages have been taken fromthe annual reports of listed publiccompanies; under Section 217 (2A) ofthe Companies Act, 1956, all publiccompany annual reports must includea statement listing every employeewho earns above a prescribed amount(Rs24 lakh at present, up fromRs36,000 in 1988). The scale and rangeof our list would explode if we couldinclude anecdotal information aboutunlisted companies – the $2-billionpackages (exclusive of stock) thatheads of foreign banks reportedly earn,for instance. But we can’t.

When Business India first publishedits list of highest-paid executives in

2002, the cut-off level was Rs10 lakh.The list included 307 names withDhirubhai Ambani leading the way atRs8 crore. In 2008, the cut-off levelwas Rs24 lakh. At top slot was MukeshAmbani earning nearly 20 times thatfigure; there were also 2,120 execu-tives whose compensation packageswere at least twice the prescribedlimit. This year, there are 3,134 peopleon the list, all of whom earn at leastRs50 lakh; 1,000 earn over Rs1 crore.If this is what a slowdown looks like, I want one of my own.

Part of the reason for the exponen-tial growth in executive pay is eco-nomic growth, of course. As theeconomy and markets grew, C-suite

compensation merely kept pace. Even15 years ago, it was possible to get atop-notch CEO with 20-odd years’experience in sales and marketingroles and P&L responsibilities for Rs50lakh a year (plus stocks and house) –about 25 per cent of global pay for sim-ilar positions. Today, it’s not uncom-mon to see HR heads and CFOs pullingupwards of Rs1 crore. “Some of the topexecutives in India are paid phenome-nally well, enough probably to buy asmall country – or at least a good-sizedvillage!” laughs Boyden India presi-dent Dinesh Mirchandani. “Whilesome of this is due to artificially-inflated demand, quality Indian tal-ent, for the most part, is finally beingvalued at the level it deserves.”

But bubble economics also had arole to play. “For the last decade ormore, remuneration decisions havebeen driven by employee shortages,especially a dearth of top talent,” saysSandeep Chaudhary, leader of Hewitt’sperformance and rewards consultingpractice in India. Beginning 2005,though, the demand for C-suite execu-tives surged and every wannabe CEO –not just Indian, but also expat andreturning native – who could checkthe required boxes on his résumé (linemanagement experience, global expo-sure, P&L responsibility) suddenly hada better-than average shot at the topjob. More importantly, he could de-mand – and receive – unheard-ofamounts as compensation by promis-

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# All promoter holdings except HCL Technlogies (June 2009) are for March 2009 * Dividends from Reliance Capital, Reliance Communications & Reliance Infrastructure** Dividends from Aditya Birla Nuvo, Grasim, Hindalco & Grasim

Big-ticket dividend earners in India Inc Name Company Promoter Dividends

holdings received by # (%) promoters

(Rs crore)

Mukesh Ambani Reliance Industries 49.03 930

Azim Premji Wipro 79.32 465

Shiv Nadar HCL Technologies 68.15 320

Anil Ambani * ADAG NA 256

Kumar Birla ** Aditya Birla Group NA 202

Dilip Shanghvi Sun Pharmaceuticals 63.71 181

Kalanithi Maran Sun TV Network 77.00 76

Y K Hamied Cipla 39.38 61

There is a lot of talk in India about high salaries and evenhigher commissions. These numbers, however, pale incomparison to the dividends some promoters get. It is ameasure also of how closely held some largecompanies are.

The adjacent list shows the big-ticket dividend earnersin India Inc. Often companies in India are controlledthrough investment companies and trusts. So, it is notnecessary that the dividend goes directly to theindividual. Also, this is the ‘promoter holding’ that couldinclude other family members. This list is only indicativeand not necessarily the highest dividend earners.

Page 5: Highest Paid Executives

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ing exponential growth that eagerboards didn’t question too closely.“For the two or three years prior to themeltdown, the paucity of relevantleaders, as well as general growth,resulted in the balance of power shift-ing in favour of executives, leading tosome large compensation numbersthat were often not in sync with theexecutive’s value proposition,” saysPreety Kumar, managing partner atglobal search firm Amrop India.

Crash landingThe ‘Great Recession’ put paid to allthat. While rank and file employeeswere laid off in industries rangingfrom textiles and chemicals to IT andfinancial services, senior manage-ment didn’t escape unscathed, either– and we’re not saying that justbecause we heard the gurgles asoptions went underwater. “2009 hasbeen characterised by salary and hir-ing freezes, low attrition levels, costcontainment, lower employee bud-gets on development/travel, lowestbase salary increases, zero/lowerbonus and long-term incentive pro-gramme (LTIP) payouts,” declares N.S.Rajan, partner and national head,human capital, Ernst & Young.

Across Corporate India, cost-cuttingbecame the raison d’etre for most com-panies, beginning with payroll. For

perhaps the first time since liberalisa-tion, salary hikes were in single digitsand while many companies gave per-formance bonuses (probably becausethe expense had accrued to the balancesheet), the payouts were much smallerthan previous years. Various surveysindicated that almost a quarter of com-panies in India planned to freeze wagesin 2009. An HR trends report by Wat-son Wyatt in August reported that 40.8per cent companies froze salaries fortop management; where hikes weregiven, levels of increase at top manage-ment (5.3 per cent, against a budgeted8.5 per cent) were much lower thanthose for senior and middle manage-ment (7 per cent and 7.8 per cent, com-pared to the planned 8 per cent).

Studies by other HR consultancieshelp shore up the view that – difficultthough it is to believe – top leaderswere the worst affected by the melt-down. Ernst & Young’s Rajan pointsout that last year, “India Inc wit-nessed the lowest-ever salaryincreases in the past five years”,adding that “level-wise analysis indi-cates lowest salary increases amongthe top management, mainly onaccount of lower bonus payouts”.

From the executives’ point of viewalso, voluntary attrition – switchingjobs, in manager-ese – came down. Notonly because there were fewer jobs tobe had, in many cases, as companiesput a freeze on hiring, but also becausemost people’s native caution kicked in.Recruiters point out that in severalcases, job negotiations reached theoffer letter stage – which the seniorexecutive used to negotiate a betterpackage with his old employer. “Theydidn’t want to risk change at the time,even if the other offer was really good,”explains a headhunter.

Back to the futureConsultants and top-level recruitersbelieve that as the economy picks upspeed in 2010, companies will attemptto restore salaries to pre-meltdown lev-els. The Watson Wyatt report pre-dicted an 8.5 per cent increase insalaries in India next year, comparedwith the average 7 per cent paid out in

2009. The more optimistic MercerIndia Monitor quarterly report esti-mates that pay will rise by 10.9 per centnext year, after going up 8 per cent in2009. According to Hewitt’s annualAsia Pacific report, released a couple ofweeks ago, India will lead salaryincreases in Asia Pacific, with averagehikes in 2010 of 9.2 per cent, comparedwith 6.3 per cent this year. As indus-trial production and price indicesbecome more stable, companies arebecoming more positive, says Hewitt’sChaudhary, adding, “which is translat-ing into willingness to invest instrengthening the value proposition to

Escalating turbine fuel costs, coupledwith dismal economic conditions, may

provide the three international carriers inIndia – Air India and Indian Airlines(owned by NACIL), Jet Airways and King-fisher Airlines – with a politically correctjustification for their Rs10,000 crorecumulative debt. But an equally responsi-ble part of the aviation debacle is dispro-portionate compensation structures.

NACIL has a wage bill of Rs3,300 crore(Rs1,400 crore of which was given as pro-ductivity-linked incentives or PLIs) for its30,600 employees – 20 per cent of its totalcost. In comparison, Jet and Kingfisherpaid 11 per cent of their total cost inemployee remuneration and benefits: Jeta little over Rs1,400 crore for its 13,483employees; and Kingfisher, Rs8,23.8 crorefor 8,614 employees.

According to industry sources, a seniorcaptain at AI receives a compensation ofabout Rs6 lakh per month (base salary ofRs1 lakh, the rest in PLIs), whereas those atJet and Kingfisher receive a little over Rs4lakh a month. Indian Airlines pilots do notreceive a fixed salary; they are paid on thenumber of hours travelled – senior pilotsmake around Rs5,600 to Rs6,000 an hour,commanders make Rs4,500 per hour andco-pilots make around Rs2,000 an hour.

Jitender Bhargava, ED, AI, was unequiv-ocal about the comparison: “Jet and King-fisher are mere airlines, but AI is a

Can high wages killan industry?

Page 6: Highest Paid Executives

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customers and employees”.The rest of the region, meanwhile,

will maintain its deathgrip on pursestrings, the experts believe. Hewittpredicts that Indonesia will continueto have the most liberal paymastersafter India, with expected hikes of 8.7per cent in 2010 (6 per cent in 2009),followed by China (6.7 per cent, onthe back of 4.5 per cent). The slowestgains in average salaries next year arelikely to be in Japan, Singapore andHong Kong – 2.1 per cent, 2.6 per centand 2.9 per cent, respectively.

But even if Indian salaries dobounce back, don’t expect a return to

the earlier, near-blind munificence.While salary structures at all manager-ial levels will see some change, CXO

compensation is likely to be com-pletely transformed. R. Sankar, execu-tive director at Pricewaterhouse-Coopers, points out that as a generalrule, “the higher you go in the hierar-chy, the higher your pay ‘at risk’.” InIndia, compensation plans that incor-porate short-term variable pay in theform of performance-linked bonus andlong-term incentive programmes suchas stock options and restricted stockgrants are still evolving. ‘At risk’ paynow accounts for over a third of total

compensation for top and senior pro-fessionals. That may not seem likemuch compared to the 80 per centvariable-fixed ratio in the US and 60-70per cent in Europe, but it is still severaltimes higher than the 10-12 per cent ofa decade ago. “What is emerging is thatpeople in top jobs are now willing tolink a greater percentage of their com-pensation to the performance of thecompany, in addition to their own per-formance,” says Oscar De Mello, coun-try head for reward informationservices at the Hay Group.

Hay Group’s market remunerationreport of October 2009 says that at the

B U S I N E S S I N D I A November 29, 2009

multi-faceted aviation company. We do allour aircraft maintenance in-house, theydon’t. That plays into our salary bill.”Refuting a wage-cost comparison with for-eign airlines he said, “These airlines areunder subsidiary companies, but at AI,everything is part of AI. When we developour subsidiaries in a year or two, the num-ber of employees will come down to11,000 or 12,000.”

NACIL sources admit, however, thatpilots are overpaid. The core lies in the

inexplicable PLIs that NACIL pilots get forbasic performance levels. Allegedly, thesewere never correlated to productivity, andAI set lower than industry standards toensure that the staff got adequate PLI. Theperformance level of average annual flyinghours was reduced from 3,055 hours to2,300 hours under the PLI scheme. Someother parameters include on-time perfor-mance, average annual flying hours, oper-ating margins, profitability and so on.Around 80 per cent of the PLI pie is report-edly split only amongst top managementofficials, engineers and pilots.

NACIL has reduced PLIs by 25-50 percent for senior staff in the hope of halvingthe annual PLI cost, but general adminis-tration and ground staff PLI cuts weredelayed. Similarly, Jet has cut allowances oftrainer pilots by 25 per cent and revisedperks offered to pilots. Also, entertainmentallowances have been curtailed, whileovertime payments and paid leave havebeen stopped. Jet will reportedly saveRs350 crore every month due to these sav-ings. Kingfisher has also been on a wage-

slicing spree. It has introduced a 20 percent variable component in pilot paydepending on the hours he flies, cut pay ofsenior pilots, and slashed trainee pilot payto a meagre stipend. The airlines are alsophasing out expatriate pilots, who are paidsometimes 40 per cent more than theirIndian counterparts.

Kapil Kaul, India head for Centre forAsia Pacific Aviation (CAPA), says, “Thesalaries of expat pilots in India are steep.They have risen from Rs2 crore to aroundRs3.5 crore in the past five years. However,the salaries of other pilots and crew are not

very high, unlike other sectors of the econ-omy... In India, salaries constitute 7-10 percent of the cost of running an airline,which is very low compared to 30 per centin the US and Europe.”

The redundancy is all-pervasive atNACIL – it has 40 EDs alone. NACIL’s 2007-08 annual report states that about 600employees get a salary of over Rs50 lakh,but there is no mention of any of the EDs ortheir salaries. Saroj K. Datta, sole ED at JetAirways, was paid Rs9,422,400 in 2008-09and the remaining 10 non-executivedirectors were paid a sitting fee ofRs20,000 per board/committee meeting.

The past three years have seen a signifi-cant migration of senior executives fromthe aviation sector, primarily due to com-pensation mismanagement by HR depart-ments. Other than the most recent case ofWolfgang Prock-Schauer, CEO, Jet, there isRamki Sundaram, executive VP, KingfisherAirlines (he was being paid Rs10,288,523as of March 2008), who is now with IvestecBank (UK), and Carl Saldanha, CFO, Jet Air-ways, who has joined BPO FirstSource Solu-tions. Interestingly, few are from NACIL.

The question arises: are Indian carriersfighting a losing battle? Foreign domina-tion on international routes, crumblinginfrastructure, mounting losses, compet-ing with a government-run national air-line, and ‘managers’ going on strike...the situation is grim. But the glamourinherent in the industry will continue tolure even the brightest to enter the fray,with hopes of soaring.

u NAMRATA CHOKSEY

Page 7: Highest Paid Executives

median level, there was an 11 per centdrop in top job base pay compared toOctober 2008. Cautions De Mello,“This doesn’t necessarily meansalaries were cut: it could mean com-panies had begun hiring at lower lev-els, or it could also point to anincrease in the variable pay compo-nent.” As it happens, the report showsthat variable pay jumped to 38 percent of total remuneration in 2009,from 28 per cent in 2008.

Still, the range remains wide – lowvariable pay component in buoyantsectors like knowledge managementand pharma and just about 4 per centin retail, higher (up to 50 per cent ormore) in sectors with high peoplecosts, such as banking, consulting, pri-vate equity and financial services. Thescales are tilting in favour of variablepay, though, as companies find thatnot only does it help keep fixed costsdown, but also increases the thrust onpay for performance. Padmaja Ala-ganandan, leader of the human capitalbusiness at Mercer, India, agrees. “Theculture of appeasement, which saweven mediocre talent getting dispro-portionate pay rises, has changed inthe downturn. Differentiation willactually strengthen now, with pre-mium on good talent and more of theincrease taking place as variable pay.”

Show some skinThat is also in line with the kind ofpay reforms being advocated in the

West. Of course, the issue of executivecompensation in India is very differ-ent. Not only is the scale of pay so dif-ferent (in 2008, the averagecompensation of a Standard & Poor’s500 company CEO was $10.8 million,compared to $242,402.32 for this listof highest-paid executives, not allCEOs, of course), but in many compa-nies, C-level positions are occupied byowner-managers (which means noconflict with shareholder interests).

Executive compensation is alwaysa thorny issue. “In a bad year, 100people will stand up at a company’sAGM and ask why the management ispaid such large salaries. In a good

year, there will still be one personwho will ask the question, but he willbe shushed by the others,” saysDeloitte’s Thiruvengadam.

Increasingly in India, there is ademand to be objective when decid-ing the rewards structure for businessleaders. One option, then, is to letmarket forces decide what’s fair andpay CXOs based on the nature of thebusiness and the kind of personrequired for the job.

What is the job? Typically, the topmanagement of any company isexpected to deliver results in the shortterm, set in place strategy and pro-grammes for the medium term, andbuild effective teams and leaders overthe long term. They have to managethe environment successfully and cre-ate shareholder value. Trouble is,there are very few people who canactually do all this. “There is greatershareholder focus on saying, ‘let’s putscience into deciding CEO salary’,”says Mercer’s Alaganandan. “But it’snot easy to be objective – talentdynamics make a difference and thereis a high ‘person premium’ involvedin taking the decision.”

Kumar of Amrop India agrees.“Often, for critical leadership roles,you can count suitable people on yourfingers,” she says.

Regardless of how many zeros arefinally tacked on to the pay chequesof top talent, it doesn’t hurt – indeed,it is imperative – to ensure that the

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Source: List published by Fortune and compiled by executive compensation research firm Equilar Inc. *Total compensation includes annualised base salary, discretionary and performance-based bonus payouts, the grant-date fair value of new stock and option awards and other compensation. Besides, other compensation also includes severance payments

Top 10 highest paid men in the world in 2008

Rank Name Company Compensation*

1 Aubrey K McClendon Chesapeake Energy 112.5

2 Sanjay K Jha Motorola 104.5

3 Lawrence Ellison Oracle 84.5

4 Richard C Adkerson Freeport McMoRan Copper & Gold 72.3

5 Bob R Simpson XTO Energy 53.5

Rank Name Company Compensation*

6 Robert A Iger Walt Disney 51.1

7 Lloyd C Blankfein Goldman Sachs 43.0

8 Kenneth I Chenault American Express 42.8

9 Jon Winkelried Goldman Sachs 42.4

10 Gary D Cohn Goldman Sachs 42.3

($ million)

There is a huge difference in executives' salaries in India and abroad. While the highest paid executive in India, Anil Ambani, hada remuneration of Rs52.04 crore ($11.04 million) in 2008-09, the highest paid executive globally, Aubrey K McClendo, tookhome $112.5 million in 2008. There are three Indian-origin men in the list of 25 highest paid men in the world:Sanjay K Jha of Motorola ($104.5 million, rank 2), Vikram Pandit of Citigroup ($38.2 million, rank 14) and Dinesh C Paliwal

of Harman International ($30.4 million, rank 25). The highest paid woman executive in the world is Oracle presidentSafra Catz ($42.4 million). PepsiCo chief Indra Nooyi ranks No. 10 on this list with a pay package of $14.9 million in 2008.

Page 8: Highest Paid Executives

organisation gets the biggest possiblebang for its buck. Aligning rewardswith performance – restructuringcompensation so that a greater por-tion is linked to individual perfor-mance and tracking it through morefrequent and vigorous appraisals – is ano-brainer. The definition of perfor-mance and its measurement is not –most consultants advise that compa-nies need to look beyond the num-bers. “Beating budget is great, buthow did you perform vis-à-vis thecompetition? What is the quality ofthe numbers you brought in – willthey help in sustained, incrementalgrowth? Those are the questionsboards need to be asking their toppeople,” suggests a compensationconsultant.

Companies also need to watch outthat targets aren’t so steep that theyincentivise excessive risk-taking oreven fudging numbers. The trick, then,lies in getting more management skinin the game – encourage companyleaders to own stock, either as a multi-ple of base pay or for a predeterminedrupee value. Convert a significant partof pay into stock that vests only after acertain number of years and after pre-determined conditions are fulfilled. Setin a place a holding period for the stockto prevent early sellout. Write in aclawback provision, where stock grantscan be reversed and payouts can betaken back.

Of course, there are no guaranteesthat these measures will ensure a bet-

ter return on talent. “Indians tend tohave short memories – people willmake the same mistakes. The solu-tion to talent scarcity is not in higherpay that will put your economicmodel at risk, but in increasingemployee engagement and lookingfor points of stickiness,” says Pricewa-terhouseCoopers’ Sankar.

Looking aheadWhat is in store for 2010? “Thedemand for people will return whenthe good times return,” declares Boy-den India’s Mirchandani. Korn/Ferry’s Sharan explains how the jobmarket will react next year: “Over thenext 12-18 months, companies will

be keen to pick up professionals whocan help them with the next phase ofgrowth, keeping costs down whilecontinuing to build systems,processes, people and external net-works. We expect companies to bewilling to pay what it takes to get theright person on board, but alsoexpect them to draw the line on any-thing frivolous.”

That’s the recruiters’ point of view.Here’s our take on potential hot but-tons in the job market.

The infrastructure sector will seebig spikes in compensation – espe-cially oil & gas and power – as willpharma and perhaps even manufac-turing. IT and banking will recover toa large extent, while telecom salarieswill remain flat.

Hikes at CXO level will be between 5per cent and 10 per cent of base pay;budget for about a percentage pointmore at every rung down the ladder. Ifyou’re in retail, FMCG or even pharma,get used to the idea of separating yourearnings into base pay and variablepay. Regardless of the sector, get usedto the idea of smaller increases in basepay. And don’t count on your willing-ness to move between cities to get youextra brownie points – the focus will beon getting the job done, not on whogets it done. Oh, and one more thing –no more sign-on bonuses and ESOPstossed around like confetti.

What if we’ve got it wrong (again)?You can read about it next year.

u MEENAKSHI RADHAKRISHNAN-SWAMI

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Top 10 highest paid promoters in India in 2008-09

Rank

1

2

3

4

5

47

19

19

-11

24

Anil Ambani

Kalanithi Maran

Kavery Kalanithi

P R Ramasubrahmaneya Rajha

Naveen Jindal

Name Net profit

% change over last year

Rank

6

7

8

9

10

-269

24

6

32

32

Malvinder Singh*

Sunil Bharti Mittal

Vivek Jain

Brijmohan Lall Munjal

Pawan Munjal

Name Net profit

% change over last year

20

14

14

-11

67

Remuneration

21

7

23

26

25

Remuneration

Despite the furore over promoters of companies taking home money disproportionate to the rise in net profits, Business India has found out that for the top 10 highest paid promoters, this is not true. Only Naveen Jindal and Vivek Jain have treated themselves to pay hikes much higher than the increase in net profits.

* Singh left Ranbaxy earlier this year