Executive Remuneration

Executive Remuneration
 Salaries and perks paid to highest decision
makers in the organizations.
 This categories includes presidents,VPs,GMs
and MDs or CEOs.
Executive Remuneration
 Features of ER in India
1.Norms of wage and salary fixation such as
job evaluation are generally ignored.
Executive Remuneration
2.There is a tendency to link remuneration to
performance.HCL,Titan and Modi,Xerox are
reported to link salaries to performance.
Executive Remuneration
3.Holidaying abroad is gaining increasing
acceptance.
 In year – executive works 10 months
 1 month holiday abroad
 1 month training.
Executive Remuneration
 4..Relatively higher salaries are paid during
the foreign assignments. Once they come
back the same executives receive less pay to
ensure parity.
 Ranbaxy reportedly follows this practice.
Executive Remuneration
5.Competition among the companies to attract
competent executives is resulting in virtual
hijacking of competent.
- Pepsi did and took away quite a few
executives from HLL & Nestle.
- Kelloggs and Coke did the same to Pepsi.
Executive Remuneration
6.Executives in the public sector stand
nowhere in comparison to their counterparts
in the private sector in respect of
remuneration.
- therefore there is movement of executives
from government to pvt sector enterprises.
- SAIL alone lost 50 to Essar,Tisco.
- BEL – BPL
- SBI too lost quite a few GMs.
Executive Remuneration
7.As the ABC consultants’ study reveals, executives
are offered ‘composite' salaries instead of ‘menu’
salaries.
Executive Remuneration
 8.Several executives have become
millionaires.
Executive Remuneration

 Justification for paying more.

Executive Remuneration
1.Executives have intrinsic worth and hence
command high premiums.
- TISCO was synonymous with Russy Modi.
- Bajaj – Rahul bajaj
- Subash Chandra of – Zee Telefilms.
- Executives who have made the organization
successful deserves high remuneration.
Executive Remuneration
 2.This category of people is always in short
supply.
- India has army of technicians,sceintists but
not competent managers.
- India required 20,000 new managers across
sectors in 2000.
- Demand exceeds supply = high price.
Executive Remuneration

 3.retaining high calibre personnel is very

difficult than attracting them.
Executive Remuneration
4.The managers must be motivated for better
performance.
- it is the money and more money that finally
motivates the employees, executives are no
exceptions.
Executive Remuneration
5.Salaries and enjoyed by the executives
across the globe are beyond anybody’s
comprehensions. Why not Indians?.
Executive Remuneration
6.Expectation people in general have gone up.
A range of goods that were once luxuries
have become necessities.
- An executive has to lead a life which fits his or
her status and job.
Executive Remuneration
 Finally there is a compelling reason why
executives must be paid more. It is to
eliminate or at least to minimize the
corruption.
Executive Remuneration

 Relevant issues in executive remuneration.

Executive Remuneration
 Is the executives are really worth of the huge
remuneration.
- Is the chief executive of Hero Honda worth
Rs.3 lakh a day or Rs 37,000 per hour.
Executive Remuneration
- Success of an organization does not only
depend on one person.
- Combined efforts of other staffs also play
crucial role.
Executive Remuneration
 Another issue relates to the gap between
the pay drawn by an executive and the wage
paid to the worker.
- While CEO of Hero Honda gets 37,000 per
hour, a worker gets Rs.25.- difference of
more than 1500 times.
Executive Remuneration
 Huge disparities are also dysfunctional.
Creates a psychological distance and a life
style disparity.
- That is why executives at various levels
sometimes tend to feel out of touch and
uncomfortable while dealing with front – line
employees.
Executive Remuneration
 Money ceases to be motivator beyond a
certain limit. Beyond this it becomes irrelevant
and often make people extravagant.
Executive Remuneration
 Finally there is a ethical issue.
Executive Remuneration
 Components of ER
- Generally comprises five elements
1.Salary
2.Bonus
3.Commission
4.Long-term incentives(ESOP)
5.Perquisites(perks)
Executive Remuneration
 Salary
- Salary is supposed to be determined through
job evaluation and serves as a basis for other
benefits.
- But job evaluation is only a partial solution
- They must be paid for their capabilities.
Executive Remuneration

 Salary as a component of total remuneration

is not significant as it is subject to various
deductions.
Executive Remuneration
 Bonus
- Bonus is a short-term incentive and is based
on performance.
- In some organizations bonus is tied to the
share price.
Executive Remuneration
- Other bonus plans are based on the
subjective judgment of the board of directors
and the CEO.
- Some organizations establish certain
targets,e.g.a 10% increase in corporate
earning and then a bonus pool after the target
is achieved.
Executive Remuneration
 Commission
- Companies pay to their executives and going
by the figures, commission constitutes a
major share in executive remuneration.
Executive Remuneration
 The CMD of Raymond received a total
remuneration of Rs.1.98 crore in 2003.of
which commission was 1.4 crore – 70.54
percent
 Common practice in private sector.
Executive Remuneration
 Long –term Incentives(ESOP)
Companies allow executives to purchase their
shares at fixed prices.Stock options are
valuable as long as the price of share keep
increasing.
Executive Remuneration
 During 2003, about half of Fortune 500 CEO
compensation was in cash pay and bonuses,
and the other half in ESOP.
Executive Remuneration
 Perquisites
- Perks constitute a major source of income for
executives.
- PF,Gratuity,Special parking, vacation
travel,memebership in clubs and well
furnished houses.
- Executives are rarely required to spend
money from their pockets.
 Flexible pay system
Executive Remuneration
 Flexible pay system
A standardized pay package would be unlikely
to satisfactorily meet the needs of all the
employees.
Flexible pay system allows each employee to
put together a benefit package individually
tailored to his or her own needs and situation.
Executive Remuneration
 It replaces the traditional “one–benefit–plan–
fits-all”
 Freedom to choose from a defined menu of
items as per the needs of an employee.
Executive Remuneration
 A recent survey in Canadian organizations
found that 93% have adopted or will adopt
flexible benefit in near future.
 A similar Survey of 307 firms at UK found that
while only 16% have flexible benefits system
in place, another 60% are either in the
process of implementing them or seriously
considering.
 Skill based pay plans
Executive Remuneration
 Skill based pay plans
- Organizations hire people for their skills and
typically put them based on their job title.
- When people are hired for their
competencies, why don’t they pay them for
the same competencies?
- Skill based pay is a alternative to job – based
pay.
Executive Remuneration

 For instance employees at American Steel

and Wire can boost their annual salary upto
$12,480 by acquiring as many as 10 new
skills.
Executive Remuneration
 It gives flexibility to the management .
 Filling staffing needs is easier when
employee skills are interchangeable.
 This is particularly true in today's economic
scenario.
 Downsized organizations needs more
generalists.
Executive Remuneration
 Where skill based pay exists you are less
likely to hear the phrase “It is not my job”.
 Skill based pay also helps meets the needs of
the ambitious employees who confront
minimal advancement opportunities.
Executive Remuneration
 What about the downside
- This can frustrate employees after they have
become challenged the environment of
learning and growth
Executive Remuneration
 Skills can become obsolete
- Cut employee pay or continue to pay for skills
which is no longer relevant.
Executive Remuneration
 There is also the problem created by paying
people for acquiring skills for which there may
be no immediate need.
- Eg – IDS Financial services
Executive Remuneration
 Finally it does not address the the level of
performance.
- The focus is merely on whether or not
someone can perform the skill and not the
actual performance.
 A commission is based on a percentage of
your actual sales. A bonus is at the discretion
of the employer, and the basis of the bonus
varies - could be for exceeding a sales quota
for the year, could be an annual event based
on a portion of the company's profits for the
year. Think "Christmas bonus."