Aligning executive expectations with long-term value creation is critical for designing CEO pay structure. By ANUBHAV GUPTA
There have been fairly strong winds of change when it comes to executive compensation in India. Going forward, the role of compensation committees will be quite unenviable as they need to ensure that the compensation packages for chief executives and the next in line are designed to balance competing objectives. On the one hand, there is an increasing demand to ensure 'pay for performance', a rise in shareholder activism on the quantum and structure of executive pay and a mounting gap between CEO pay and others' compensation. On the other hand, there is a competitive talent environment, coupled with executive expectations regarding pay programmes that provide an opportunity to create wealth. Balancing all these aspects will be important and from our perspective, we believe that the future of executive pay will shape up around the following principles.
Pay for Performance
Linkage As the pay quantum increases, the compensation committees need to ensure that there is strong linkage to performance. Shareholder advisory bodies are taking a close look at pay and performance alignment, and this will only increase globally and in India. Some of the key issues highlighted in the recent past are relative pay increases being much higher compared to relative performances vis-à-vis peers, substantial bonus payouts without disclosure of proper justification to shareholders and ad-hoc stock-based grants without clear rationale communicated to shareholders.
This story is from the April 23, 2017 edition of Business Today.
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This story is from the April 23, 2017 edition of Business Today.
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