EXECUTIVE

COMPENSATION
MD & CEO, Tata group
Trends in executive compensation

a) Industry lead differentiation in executive rewards

b) Key people movement

c) The composition of executive pay- executives are more

risk averse

d) They care more about relative pay –how they were paid

in relation to their peers.

Points to be considered in Executive remuneration

• Global Impact & placement of roles

• Changing structures for improved focus

• Shareholder & founder activism

• Benchmark for the position or earning potential

• Short term gain vs long term wealth creation

Questions related to Compensation
Are CEOs paid based on performance?

Are CEOs paid based on industry?

Are CEOs paid based on company size?

Are CEOs paid and promoted on Merit?

General Motors Co’s top executive, Mary Barra
• Her total compensation package was valued at $21.87 million, slightly below
the $21.96 million she received in 2017. Barra, GM’s chairman and chief
executive, was paid $22.58 million in 2016. GM said Barra’s pay was 281
times that of the median company employee.

• Barra’s pay package included a salary of $2.1 million, unchanged from 2017;
stock awards worth almost $11.1 million; options worth more than $3.4 million
and a performance award worth almost $4.5 million, according to the proxy.

• Barra is GM’s highest paid executive.Chief Financial Officer Dhivya

Suryadevara received slightly more than $5.5 million in total compensation,
and Chuck Stevens, who she replaced last September, received just under $7
million, according to the proxy.

• Former President Dan Ammann, who now heads GM’s Cruise automation
unit, received just under $9 million, while Mark Reuss, who replaced Ammann
as president, received almost $7.4 million, according to the proxy.
Top paid CEO’s
• 1. Elon Musk - CEO Tesla Inc.
• Total compensation: $513 million
• 2. Brendan Kennedy - CEO and President, Tilray Inc.
• Total compensation: $256 million
• Bob Iger - CEO and Chairman, Walt Disney Co.
• Total compensation: $146.6 million

• Tim Cook - CEO Apple Inc.

• Total compensation: $141.6 million

• Nikesh Arora - CEO and Chairman, Palo Alto Networks Inc.

• Total compensation: $130.7 million

• https://www.investopedia.com/highest-paid-ceos-2019-4687532
 Top Paid Executives (Non Promoters)
• A.M. Naik, Group Chairman, Larsen & Tourbo – Rs. 78.91 crore (up 19.29%)

• Om Prakash Manchanda, CEO, Dr. Lal PathLabs – Rs. 33.20 crore (up 12%)

• N. Chandrasekaran, Chairman, Tata Consultancy Services – Rs. 30.16 crore (up 17.55%)

• S.N. Subrahmanyan, MD & CEO, Larsen & Tourbo – Rs. 23.71 crore (up 7.17%)

• Guenter Butschek, Managing Director & CEO, Rs. 22.55 crore

• Yogesh Chander Deveshwar, Chairman, ITC, Rs. 21.17 crore (up 58%)

• Markand Bhatt, Whole-time Director, Torrent Power – Rs. 21.00 crore (down 31%)

• D. Bhattacharya, Vice Chairman, Hindalco Industries – Rs. 19.77 crore

• Satish Pai, Managing Director, Hindalco Industries – Rs. 17.51 crore (up 25.43%)

• Vinod Kumar, MD & Group CEO, Tata Communications, Rs. 16.87 crore (up 17.60%)

• Vivek Gambhir, MD & CEO, Godrej Consumer, Rs. 15.95 crore (down 18%)

• Mohit Gujral, Whole-time Director & CEO, DLF, Rs. 15.20 crore (up 1%)

• https://
economictimes.indiatimes.com/management-leaders/top-10-highest-paid-ceos-of-india/kavery-kalanithi/slideshow/48220555.cms
• https://www.vccircle.com/who-are-the-highest-paid-executives-in-india/
• https://economictimes.indiatimes.com/news/company/corporate-trends/india-incs-top-executives-earn-243-times-more-than-average
-staff/articleshow/63359591.cms
 Highest paid CEO
• Name Company Salary (Rs. Crore)
• C.P. Gurnani MD & CEO, Tech Mahindra 165.6
• Pawan Munjal CMD & CEO, Hero MotoCorp 43.9
• D.B. Gupta Chairman, Lupin 37.6
• Aditya Puri MD, HDFC Bank 32.8
• Sunil Mittal Chairman, Bharti Airtel 27.2
• N. Chandrasekeran CEO & MD, TCS 21.3
• Rajiv Bajaj MD, Bajaj Auto 20.5
• K.M. Birla Chairman & Non-executive director, UltraTech 19
• Y.C. Deveshwar Chairman & Wholetime Director, ITC 15.3
• Navin Agarwal Chairman, Vedanta 15.1

• https://officechai.com/miscellaneous/top-10-highest-paid-ceos-in-
india/#sthash.yXOCrZwG.dpbs
• http://www.paycheck.in/main/salary/salarycheckers/vipcorporate
• https://finapp.co.in/ratan-tata-net-worth/
What is Executive Compensation?

• Core Compensation= Base Pay & guaranteed Bonus,

• Short term Incentives

• Long term incentives

• Stock Options

• Fringe Compensation

• Performance based pay (devising appropriate performance standards

,shareholder value ,operating profit margin , revenue growth)
• Executive Compensation = f(Level of hierarchy ,firm effects , time
effects, Education and work experience)
 The principles of the executive compensation

Clear focus on profits generation

Long term orientation of the compensation scheme

Motivation of manager by high bonuses

Non cash focus of the compensation (stock options)

 Risk Management

Balanced Scorecard implemented into compensation

scheme
Elements of Executive Compensation
• Higher managerial post are - presidents, vise-presidents,
directors, general manager, etc
• Managerial remuneration of such positions comprises of 5
elements:
1) Base Pay
2) Short Term Incentive (Bonus – achieving short term goals like
yearly sales, revenue)
3) Long Term Incentive (Stock options)
4) Perquisites (Special benefits for executives usually non-cash
items alike insurance, retirement pension plans)
5) Benefits
 ESOP

1) Employee Stock Option Scheme (ESOS) continued service over a specific

period of time.

2) Employee Stock Purchase Plan (ESPP)- discount from fair market value

3) Restricted Stock Units (RSU)- to receive shares on a pre-determined date

subject to occurrence of a specified event or fulfillment of specified conditions.

4) Stock Appreciation Rights (SARs)- Both essentially are bonus plans that grant

not stock but rather the right to receive an award based on the value of the

company's stock, hence the terms "appreciation rights"

 SALARY
• Salary determined through job evaluation and serves as
basis for other benefits
• Manager is paid for his capabilities and for job he
performs
• Norms of wages and salary fixation are generally not
observed while fixing salary of manager
• Salary of managers varies by the type of job , size of
organization, region of the country and type of industry .
• Salary makes up of about 40 to 60 % of top managers’
annual compensation but it is not significant , as it is
subject to deduction at source
• To avoid such deductions managers are offered incentives
and attractive perks
 PROFIT SHARING
• This type of incentive is annual and based on company
performance or profit sharing

• In some system annual bonus tied to share returns on

investments

• Other bonus plans are based on subjective judgments of

board of directors and CEO’s
 LONG TERM INCENTIVES/STOCK OPTIONS
• If bonus are short term benefits , stock options are long term
benefits offered to managers
• Companies allow managers to purchase their shares at fixed
price
• Stock options valuable as long as price of share keeps
increasing
 Perquisites

• Special benefits for executives usually non-cash items:

- Companies provide health club memberships with personal
trainers
- Discounted company products
- Automobiles
- Country club memberships
- First class airfare or use of the corporate jet
- Executive health plans
- Personal car service
- Personal computers and cell phones
- Entertainment
- Financial planning assistance
Why executives Should Be Paid More
• can have considerable worth , hence command hefty
premiums
• Manager’s success is the means by which organizational
goal is achieved
• Financial reward is a symbol of manager’s role, its power ,
its dignity and its freedom
• Organization pay heavily to attract and retain talented and
competent manager
• Lifestyle of manager needs considerable amount of money
• For manager financial reward is symbol of social prestige
and position
• High compensation is made to manager to eliminate or
minimize corruption .
Unique Feature of Managerial Remuneration

• Their competence and contribution are the strengths

for determining their pay package
• Secrecy is maintained in respect of managerial
remuneration.
• No two executives in private sectors, in same grade
receive same pay
• Compensation and reward depends upon such factors
as competence , length of service , contributions, and
loyalty to the company
• Exorbitant amounts are paid to executives in some
organizations.
• annual salary of CEOs’ range even to few crore
 IBM EXECUTIVE COMPENSATION PACKAGE
Two main components of executive compensation package
• Base salary and Cash Incentive/Bonus
• Long-term Incentive Compensation
Three main elements drive compensation package
• Competitive marketplace
• Complexity of leading IBM &
- Pay for performance not loyalty or tenure
- Differentiate pay based on the marketplace
- Differentiate increases based on individual performance pay in
marketplace
- Differentiate bonuses based on business performance and individual
contributions
- Differentiate stock-option awards based on critical skills of individual
and risk of loss to competition
Expectancy theory of Victor Broom
• Person’s motivation to exert some level of effort depend
on three things :

 The person’s expectancy “ E” (in terms of probability)

 Instrumentality “ I” (perceived
relationship between successful performance & actually
obtaining the rewards
 Valence “V” (perceived value the person
attaches to the reward)
What determines executive pay?
Job Complexity (span of control , functional divisions
over Which the executive has direct responsibility)

Employer’s ability to pay ( total profit & rate of return)

Human Capital
Who Sets Executive Compensation?
Different for Each Company

Compensation Consultants

Compensation Committees

Board of Directors

Shareholders
Employee benefits
• Golden Handcuff

• Golden Handshake

• Golden Hello

• Golden Parachute
Agency Theory: Executive Compensation

• An executive compensation plan is:

an agency contract between the firm and its manager

attempts to align the interests of owners and manager

details the manager’s compensation (bonus, shares,

options, salary, benefits, memberships, etc.)

bases on one or more measures (net income and share

price) of the manager’s effort in operating the firm.

 Conclusion

• If you pay peanuts, you get monkeys.”

• Rewarding good work with appropriate pay, benefits and

recognition

• The above are must to keep Executive compensation

scenario at the most healthy level