StatsGuru-13-May-13

Making sense of top executives' salaries in India

The question of how much top executives should be paid has been a vexed one especially since the financial crisis of 2008. India's Prime Minister, too, has called for restraint in chief executive officer (CEO)'s pay. Recent work by the investor advisory firm IIAS has investigated the nature of the problem. Table 1 shows the difference between mean and median pay for the listed firms. The large difference shows salaries are very heavily skewed at the top-end of the distribution - in fact, CEOs are paid on an average, 285 times the mean of their firms' salaries. Worryingly, as Table 2 shows, the average employee's pay in Sensex companies has declined recently but managing directors' pay has increased, apparently at a steeper gradient than profit after tax. There are, however, significant differences between Sensex companies, BSE 100 companies and BSE 500 companies in the data. As Table 3 shows, Sensex companies pay their executives more but BSE 500 companies' pay is more resilient over time. Indeed, as Table 4 shows, MD's pay as a percentage of profit is much higher in BSE 500 companies, and has increased over the past few years. There are other differences worth marking. While average executive pay in the public sector has increased sharply since 2008, so has the vast gap between it and average pay in the private sector (Table 5). Table 6 shows the breakdown of how much board members are paid in various sectors. Clearly, sectorally, there is no clear pattern as to who pays more. The answer is probably supplied by Table 7. In promoter-run firms, some executives are being overpaid - presumably, thanks to connections to the owners. (Click here for table)