Executive Compensation: The Winds of Change
Majority of these organizations are part of infrastructure and manufacturing, two sectors that have been facing strong headwinds both from global economic standpoint and internal policy challenges. Our analysis show that if we consider all companies i.e. including companies with underwater options (see Chart 3), the realized gain from options would have been 2.16 times the fair value on an average. Excluding the companies with underwater options (see Chart 4), the realized gains would have been 2.83 times of fair value on an average. This essentially means that if an executive was granted 10 million worth of options (the value considered in the survey), the realized gain is actually Rs. 28.3 million
Executive compensation is about creating a right balance between expectations, fairness, competitiveness, performance and sustainability. All these factors should be considered from both the executive's standpoint and also from the standpoint of other stakeholders which include shareholders, customers and other employees. The Compensation Committees and the Boards have an unenviable task to find this right balance and ensure that the compensation decisions are justified and are fair to all. With the Indian economy on the verge of getting back to a high single-digit growth rate, the expectations for executives who efficiently lead the organizations and take advantage of opportunities will be to get rewarded in a fair manner. The Compensation Committees while managing these expectations need to ensure that performance is real and sustainable, and the rewards reflect these sound principles of governance.
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