Compensations received by CEOs has unsustainable highs at a time when the global economy is barely showing signs of growth
A recent research has revealed two things – one that CEO compensation has touched new highs this year bringing things to an unsustainable levels for companies hoping to shrug off sluggish economic growth. The second is these corner office czars earned 184 times more than the rest of their staff during fiscal 2021.
So much for all the brouhaha about austerity measures during the global economic lockdown that was brought about by Covid-19 in March of 2020 and through to August of 2021. CEO salaries in the top listed companies rose 2.6% over the past two fiscal years from Rs.11.5 crore in FY19 to Rs.11.8 crore in FY21, says an analysis by PrimeInfobase.com.
The problem is getting compounded
Even if one were to ignore the altruistic angle, rising CEO salaries are also causing a business challenge for enterprises seeking to hire fresh talent at the leadership levels. A Mumbai-based executive search firm told us that companies were making counter-offers to retain executives who were sitting with offer letters from others.
The Primedatabase research indicated that CEOs and Managing Directors took home 11% to 15% more money during FY 2022 with the best of this lot getting as high as a 45% spike. Having thus feathered their own nests during a period where employees received small hikes and often no hikes, today the boot is on the other foot.
The report said Infosys CEO Salil Parekh saw his compensation jump to Rs.71 crore in FY22 via a hike in performance-based variable pay as well as stock incentives. However, the company also became one of the worst-affected by the resignations since January this year. One cannot miss this irony.
What’s the solution?
Of course, several chief executives took a salary cut or refrained from a hike in FY21 due to the Covid-19-led lockdown. Maybe some of them are now getting rewarded though one wonders if it would be in the fitness of things to share the rewards across a larger pool, especially with those that actually keep the wheels turning on a daily basis.
Be that as it may, the challenge now is that these high salaries aren’t coming down any time soon, given the extreme paucity of leadership talent. Unless enterprises begin creating a second level of leadership via a succession plan, this problem would only exacerbate, leaving a big hole in their profitability pie.
In fact, these challenges would be felt more in mid-tier companies where the pay hikes of such an order could effectively render the CEO as an indispensable asset, something that goes against the very norm of business risks.