Executive Compensation

 

EXECUTIVE COMPENSATION MD & CEO, Tata Tata group g roup

 

Trends in executive compensation a) Industry lead differentiation in executive rewards b) Key people movement c) The composition of executive pay- executives are more

risk averse d) They care more about relative pay –how they were paid

in relation to their peers.

 

Points to be considered in Executive remuneration • Global Impact & placement of roles • Changing structures for improved focus • Shareholder & founder activism • Benchmark for the position or earning potential • Short term gain vs long term wealth creation

 

Questions related to Compensation  Are

CEOs paid paid based on performance? performance?

 Are

CEOs paid paid based on industry? industry?

 Are

CEOs paid paid based on company company size? size?

 Are

CEOs paid paid and promoted on Merit?

 

General Motors Co’s top executive, Mary Barra • Her total compensation package was valued v alued at $21.87 million, slightly below

the $21.96 million she received in 2017. Barra, GM’s chairman and chief executive, was paid $22.58 million in 2016. GM said Barra’s pay was 281 times that of the median company employee. • Barra’s pay package included a salary of $2.1 million, unchanged from 2017;

stock awards worth almost $11.1 $11.1 million; options worth more than $3.4 million and a performance award worth almost $4.5 million, according to the proxy.

• Barra is GM’s highest paid executive.Chief Financial Officer Dhivya Suryadevara received slightly more than $5.5 million in total compensation,

and Chuck Stevens, who she replaced last September, September, received just under $7 million, according to the proxy. • Former President Dan Ammann, who now heads GM’s Cruise automation

unit, received just under $9 million, while Mark Reuss, who replaced Ammann as president, received almost $7.4 million, according to the proxy. proxy.

 

Top paid CEO’s • 1. Elon Musk - CEO Tesla Tesla Inc. • Total compensation: $513 million • 2. Brendan Kennedy - CEO and President, Tilray Inc. • Total compensation: $256 million • Bob Iger - CEO and Chairman, Walt Disney Co. • Total compensation: $146.6 million • Tim Cook - CEO Apple Inc. • Total compensation: $141.6 million • Nikesh Arora - CEO and Chairman, Palo Alto Networks Inc. • Total compensation: $130.7 million • https://www.investopedia.com/highest-paid-ceos-2019-4687532

 

Top Paid Executives (Non Promoters) • A.M.

Naik, Group Chairma Naik, Chairman, n, Larsen & Tourbo Tourbo – Rs. 78.91 crore (up (up 19.29%) 19.29%)

•

Om Prakash Manchanda, CEO, Dr. Lal PathLabs – Rs. 33.20 crore (up 12%)

•

N. Chandrasekaran, Chairman, Tata Consultancy Services – Rs. 30.16 crore (up 17.55%)

•

S.N. Subrahmanyan, MD & CEO, Larsen & Tourbo – Rs. 23.71 crore (up 7.17%)

•

Guenter Butschek, Managing Director & CEO, Rs. 22.55 crore

•

Yogesh Chander Deveshwar, Chairman, ITC, Rs. 21.17 crore (up 58%)

•

Markand Bhatt, Whole-time Director, Torrent Power – Rs. 21.00 crore (down 31%)

•

D. Bhattacharya, Vice Chairman, Hindalco Industries – Rs. 19.77 crore

•

Satish Pai, Managing Director, Hindalco Industries – Rs. 17.51 crore (up 25.43%)

•

Vinod Kumar, MD & Group CEO, Tata Communications, Rs. 16.87 crore (up 17.60%)

•

Vivek Gambhir, MD & CEO, Godrej Consumer, Rs. 15.95 crore (down 18%)

•

Mohit Gujral, Whole-time Director & CEO, DLF, Rs. 15.20 crore (up 1%)

•

https://

economictimes.indiatimes.com/management-leaders/top-10-highest-paid-ceos-of-india/kavery-kalanithi/slideshow/48220555.cms https://www.vccircle.com/who-are-the-highest-paid-executives-in-india/ • https://economictimes.indiatimes.com/news/company/corporate-trends/india-incs-top-executives-earn-243-times-more-than-average -staff/articleshow/63359591.cms •

 

 Highest paid CEO • Nam Name e

Company Compan y Salary Sal ary (Rs (Rs.. Cro Crore) re) • C.P C.P.. Gurna Gurnani ni MD & CEO, Tech Mahin Mahindra dra 165.6 • Pawa Pawan n Munja Munjall CMD & CEO, Hero MotoCo MotoCorp rp 43.9 • D. D.B B. Gu Gupt pta a Chai Ch airm rman an,, Lu Lupi pin n 37.6 37 .6 •  Aditya Puri • Sun unilil Mi Mitt ttal al

MD, HDFC Bank 32.8 Chairm Chai rman an,, Bha hart rtii Air irte tell 27.2 27 .2 • N. Ch Chan andr dras ase eke kera ran n CE CEO O & MD MD,, TCS 21.3 21 .3 • Rajiv Bajaj MD, Bajaj Auto 20.5 • K. K.M. M. Bi Birl rla a Ch Chai airm rman an & No Nonn-ex exec ecut utiv ive e di dire rect ctor or,, Ul Ultra traT Tec ech h 19 • Y.C. Deveshwa Deveshwarr Chairman Chairman & Wholeti Wholetime me Director Director,, ITC 15.3 • Na Navi vin n Aga garw rwal al Chairm Chai rma an, Veda dan nta

15.1 15 .1

• https://officechai.com/miscellaneous/top-10-highest-paid-ceos-in-

india/#sthash.yXOCrZwG.dpbs • http://www.paycheck.in/main/salary/salarycheckers/vipcorporate • https://finapp.co.in/ratan-tata-net-worth/

 

What is Executive Compensation? • Core Compensation= Base Pay & guaranteed Bonus, • Short term Incentives

• Long term incentives • Stock Options • Fringe Compensation • Performance based pay (devising appropriate performance standards

,shareholder value ,operating profit margin , revenue growth) • Executive Compensation Compensation = f(Level of hierarchy ,firm effects , time effects, Education and work experience)

 

The principles of the executive compensation Clear

focus on profits generation

Long

term orientation of the compensation scheme

Motivation Non

of manager by high bonuses

cash focus of the compensation (stock options)

 Risk

Management

Balanced

scheme

Scorecard implemented into compensation

 

Elements of Executive Compensation • Higher managerial post are - presidents, vise-presidents,

directors, general manager, etc • Managerial remuneration of such positions comprises of 5

elements: 1) Base Pay 2) Short Term Term Incentive (Bonus – achieving short term goals like yearly sales, revenue) 3) Long Term Term Incentive (Stock options) 4) Perquisites (Special benefits for executives usually non-cash items alike insurance, retirement pension plans) 5) Benefits

 

ESOP 1)  Employee Stock Option Scheme (ESOS) continued service over a specific

period of time. 2) Employee Stock Purchase Plan (ESPP)- discount from fair market value 3) Restricted Stock Units (RSU)- to receive shares on a pre-determined date

subject to occurrence of a specified event or fulfillment of specified conditions. 4) Stock Appreciation Rights (SARs)- Both essentially are a re bonus plans that tha t grant

not stock but rather the right to receive an award based on the value of the company's stock, hence the terms "appreciation rights" rig hts"

 

SALARY • Salary determined through job evaluation and serves as

basis for other benefits • Manager is paid for his capabilities and for job he performs

• Norms of wages and salary fixation are generally not

observed while fixing salary of manager  •  Salary of of managers varies varies by the type of job , size size of organization,, region of the country and type of industry . organization • Salary makes up of about 40 to 60 % of top managers’

annual compensation but it is not significant , as it is subject to deduction at source • To avoid such deductions managers are offered incentives and attractive perks

 

PROFIT SHARING • This type of incentive is annual and based on company

performance or profit sharing • In some system annual bonus tied to share returns on

investments

• Other bonus plans are based on subjective judgments of

board of directors and CEO’s

 

LONG TERM INCENTIVES/ST INCENTIVES/STOCK OCK OPTIONS • If bonus are short term benefits , stock options are long term

benefits offered to managers • Companies allow managers to purchase their shares at fixed price • Stock options valuable as long as price of share keeps increasing

 

 Perquisites • Special benefits for executives usually non-cash items:

- Companies provide health club memberships with personal trainers - Discounted company products -  Automobiles - Country club memberships - First class airfare or use of the corporate jet - Executive health plans - Personal car service - Personal computers and cell phones - Entertainment -

Financial planning assistance

 

Why executives Should Be Paid More • can have considerable worth , hence command hefty

premiums • Manager Manager’s ’s success is the means by which organization organizational al is achieved • goal Financial reward is a symbol of manager’s role, its power , its dignity and its freedom • Organization pay heavily to attract and retain talented and competent manager

• Lifestyle of manager needs considerable amount of money • For manager financial reward is symbol of social prestige

and position • High compensation is made to manager to eliminate or minimize corruption .

 

Unique Feature of Managerial Remuneration • Their competence and contribution are the strengths • • •

• •

for determining their pay package Secrecy is maintained in respect of managerial remuneration. No two executives in private sectors, in same grade receive same pay Compensation and reward depends upon such factors as competence , length of service , contributions, and loyalty to the company Exorbitant amounts are paid to executives in some organizations. annual salary of CEOs’ range even to few crore

 

EXECUTIVE COMPENSA IBM EXECUTIVE COMPENSATION TION PACKAGE PACKAGE T wo main components of executive compensation package • Base salary and Cash Incentive/Bonus • Long-term Incentive Compensation Three main elements drive compensation package • Competitive marketplace • Complexity of leading IBM & - Pay for performance not loyalty or tenure - Differentiate pay based on the marketplace - Differentiate increases based on individual performance pay in marketplace - Differentiate bonuses based on business performance and individual contributions - Differentiate stock-option stock-option awards based on critical skills of individual and risk of loss to competition

 

Expectancy theory of Vict Victor or Broom • Person’s motivation to exert some level of effort depend

on three things :  The

person’s expectancy “ E” (in terms of probability)  Instrumentali Instrumentality ty “ I” (perceived relationship between successful perform performance ance & actually obtaining the rewards  Valence “V” (perceived value the person attaches to the reward)

 

What determines executive pay? Job

Complexity (span of control , functional divisions over Which the executive has direct responsibility)

Employe Employerr ’s

Human

ability to pay ( total profit & rate of return)

Capital

 

Who Sets Executive Compensation? Different

for Each Company

Compensation

Consultants

Compensation

Committees

Board

of Directors

Shareholders

 

Employee benefits • Golden Handcuff • Golden Handshake • Golden Hello

• Golden Parachute

 

 A  Ag gency Theory: Executive Compensatio ion n • An executive executive compensation compensation plan is: is: an

agency contract between the firm and its manager 

attempts details

to align the interests of owners and manager 

the manager’s manager ’s compensation compensation (bonus, shares,

options, salary, benefits, memberships, etc.) bases on one or more measures (net income and share price) of the manager’s manager ’s effort effort in operating the firm.

 

Conclusion • If you pay peanuts, you get monkeys.” • Rewarding good work with appropriat appropriate e pay pay,, benefits and

recognition •

 The above are most must healthy to keeplevel Executive compensation scenario at the