Young CEOs, a costly affair?

According to a recent report,

younger Indian CEOs are paid more

than their US counterparts

7th Nov, 2013  By Yasmin Taj, TOI

The younger breed of CEOs in India Inc is here for the long haul and proving its mettle by beating its western counterparts in the compensation game. A recent report by Randstad Executive Search, ‘Compensation of Corporate Indian CEOs', a comparative study done to provide insights into the current trends of salaries among CEOs, says that younger CEOs are paid more in India than their US counterparts. The average annual salary of an Indian CEO below the age of 50 now stands at Rs 7.9 crore. Compared with Rs 7.3 crore that American corner office occupants earn and Rs 7.8 crore pocketed by European bosses, it highlights the rising salaries of younger CEOs, especially in promoter-run firms in India.

So, why are the younger CEOs in India at this advantage? Which factors are driving this trend? According to E – Balaji MR & CEO, Randstad, India, "The first generation promoters are passing on the CEO mantle to their heirs and other family members. These young promoter CEOs are compensated higher and closer to their global peers. This trend is evident in the manufacturing and energy and infrastructure segments. We have seen the role of the CEO gaining prominence in the last decade. Indian companies face increasing global competition and are looking at expanding beyond India. There is a demand for high-performing CEOs from across sectors. This has impacted CEO compensation positively."

GC Jayaprakash, client partner & APAC technology leader, Stanton Chase International shares his views on the report and says, "While I agree with this, it should be noted that the survey findings are more relevant in the case of promoter CEOs rather than professional CEOs. The promoter CEOs in India definitely get paid more than their US counterparts. Today, many of the promoter families have brought in their young family members into key executive roles at high compensation levels. The younger lot (most of them with Ivy school degrees) has been doing a good job with some exceptions." He further adds that while this trend cuts across all sectors, it is more prevalent in manufacturing, automotive, infrastructure, healthcare and pharma life sciences, hospitality and realty industries.

Similarly Sunil Goel, Director, GlobalHunt feels that there is a higher risk appetite of the young CEOs in the country, which in turn gives them high returns in terms of salaries. "Younger CEOs in India are showing their ability to understand complex business problems; they are able to cope with setbacks and failures; are coming up with practical solutions; are adaptable to change; and can bring radical and positive changes to the business," he adds.

However,Dhruv Shringi, CEO and co –founder Yatra.com disagrees, "The report doesn't relate to the Indian standards of the CEO's salaries. It's a predetermined notion that Indian CEOs are being paid more. If we look at the Indian scenario, 80 per cent of the CEOs are the kids of entrepreneurs. Only this bunch of the CEOs is drawing well-heeled salaries and this is to create a benchmark."

While this is one positive side of the coin, the study also states that while younger Indian CEOs may have stolen a march over their global peers in the salary sweepstakes; overall, Indian CEO salaries are substantially lower than their international counterparts. Indian CEOs received an average salary of Rs 6.3 crore. The compensation of Indian CEOs, though growing sharply, is still 45 per cent lower than their American peers and 21 per cent lower than European CEOs. However, the gap in salaries when compared to European CEOs is shrinking faster. Hence, the question that arises is - why are younger CEOs beating their western counterparts while the other CEOs still lag behind? Jayaprakash feels that it is natural for entrepreneurs/promoters to bring in the next generation into their business as a part of the succession plan. However, there exists a huge difference in the way things are managed in the US and India. "In the US, the promoter family vests control once the company is listed and a professional CEO is hired. In India, in most of the cases, the promoter families continue to play a larger role in the company even after listing. Though many Indian companies hire a professional CEO, there is always a family member (from the next generation) around playing a larger role in the company affairs," he states.

According to Goel it depends on the purchasing power and currency valuations too. "This is also because old-age business models like in manufacturing, production, etc follow conventional and orthodox systems. Others CEOs are lagging behind because of a lack of analytical and risk-taking abilities," he comments.

"In India, we have seen the role of the CEO gaining prominence in the last decade, whereas in the US and Europe, the role of CEOs has been prominent for over four or five decades. So, as the importance of the CEO's role evolves, we expect the gap to shrink," expresses Balaji.

Hence, it is a positive sign that more and more Indian CEOs are getting compensated at world-class levels. This only proves that with the growing complexities in business, compensations will certainly rise further.