In this podcast episode, Nitin Sethi, CEO of Aon - India & South Asia, uncovers the impact of COVID-19 on executive pay, and how the crisis is motivating leaders to focus on their mission.
The COVID-19 pandemic may have left a dent in the pay packages of senior executives in India in 2020. However, the impact was purported to be “significantly less” than that of the Global Financial Crisis more than a decade ago. Other factors, such as performance in today’s business climate, influence how companies evaluate their compensation plans for 2021, according to the latest insights from professional services firm Aon.
“At 6%, the 2021 projected salary increase for senior executives is down by 1.4% from 2020. The COVID-19 pandemic had less of an impact than the 2008-09 Global Financial Crisis, when projected salary increases for senior executives dropped by almost 5%,” said Nitin Sethi, Chief Executive Officer, Human Capital Solutions at Aon - India & South Asia.
With the median CEO compensation now at INR 3.63 Crores among Indian private companies, analysts from Aon believe executive pay practices across the country are keeping pace with those of US and European firms. Headwinds seen in 2020 have prompted companies in India to emphasize business performance as a target for executive rewards -- for example, more than half of CEO compensation is now linked to performance.
Variable pay and long-term incentives (LTI) currently comprise 52% of total compensation. The trend is pivoting away from basic stock options to restricted stock options (34%) and performance shares (16%). In fact, more than a quarter of Indian firms turn to LTIs when aiming for a diverse range of objectives. Given these changes, analysts predict the following trends:
- Executive wealth creation will primarily happen through equity-based plans.
- The rise in performance-based plans is set to drive shareholder alignment and sustainability.
- The deployment of one-time transformation incentives will create “exponential value” for the organization.
Creating purpose, driving performance
The focus on performance enables businesses to integrate their compensation strategy with their overall business goals, the Aon study found. Compensation adjustments are more meaningful and impactful to companies when the changes are seen in the larger context of organizational purpose, Sethi advised.
“Five, six years back, India was literally a double-digit pay increase market, including [pay] for senior executives, but some of that has settled. During COVID, what we saw is that even different companies took different actions on pay,” Sethi said.
Overall, Indian companies are facing immense pressure to retain talent whether at the junior or executive level. Offering pay increases alone is not a solution, according to Sethi.
“It’s time for companies to go back to the drawing board and do a balancing between their total rewards plans and rewards strategies, and optimize all aspects of total rewards, not just the fixed pay elements,” he said. “Look at your purpose and benefits plans. Look at how goals are set. Look at who you want to attract and, in that context, decide what kind of program you want.
“Just having pay increases, which are driven on fixed pay, is a very short-term answer to how you want to manage your rewards programs and attract and retain talent,” Sethi said.
Listen to the full interview here: