INDIA - PwC: India Inc Gets Pay Right(er) - Equity Compensation is here to stay

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PwC: India Inc Gets Pay Right(er)
Added 15th Feb 2012
SUNIL SHAH
The trend of using equity-based incentives--mainly ESOPs--as a portion of senior Indian executive pay packages is here to stay, according to a new report by PwC. It's one of a number of trends that demonstrates a growing maturity in the way Indian companies look at compensation packages, says PwC.
Indian companies will continue to use long-term incentives like ESOPs to reward and retain senior executives--despite a roller-coaster stock market--reinforces the ‘growing maturity' story, said Padmaja Alaganandan, executive director consulting, PwC India.
"In 2008, when the stock market crashed, a lot of companies that had created equity-based plans, pulled them back. But the point of a risk to pay variable is just that--they are not guaranteed," said Alaganandan.
That trend is changing she said. Today, about 95 percent of companies have--or plan to have--long-term incentive schemes, compared to about 50 percent some years ago, said Alaganandan.
"The resurgence of equity-linked LTI (long-term incentives) in a lack lustre stock market re-iterates the maturity of compensation practices," she said.
Today, on an average, the risk-to-pay variable of a compensation package forms about 40 percent of top executive pay packages, with an even spilt between long-term incentives like ESOPs and short-term incentives. But that is will a long way from risk-to-pay ratios found in other parts of the world.
"At the other extreme," said Alaganandan, "if you look the Dow Jones 350, guaranteed pay forms only 20 percent of executive compensation packages."
Another indicator that the way Indian companies look at compensation is maturing is the way they use long-term incentives. In the past, says PwC, "it was used indiscriminately," meaning it was targeted at multiple--in some cases all--levels of an organization.
"Today, we see a more judicious use of equity. Companies are narrowing the eligibility of LTI plans to middle and senior management, as it has had limited success in retention at junior levels," said PwC.