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Indian CEOs' breathtaking salaries

April 30, 2007 12:15 IST

Being the chief executive of an Indian company has never been more rewarding for professionals with expensive cars, a large house, overseas holidays and an eight-figure salary, with year-end bonus and stock options thrown in. Top executives are the new rich churned out by the booming Indian economy.

Unheard of till a few years ago, a salary of over a million dollars no longer creates shock and awe. EMA Partners international managing partner (India), K Sudarshan, reckons there are between 75-100 million dollar non-promoter CEOs in the country spread across high growth sectors like financial services, private equity, consulting, telecommunications and information technology. He has negotiated two such engagements recently.

And it is not just the CEO whose salary has crossed the Rs 1 crore (Rs 10 million) barrier. In 2005-06, Bharti Airtel had no less than 13 employees drawing a crore or more.

In fact, with a salary cheque of Rs 3.21 crore (Rs 32 million) per annum, joint managing director Akhil Gupta was paid better than the other joint managing director and a promoter of the company, Rajan Bharti Mittal (Rs 2.48 crore).

Cipla joint managing director Amar Lulla got the same as the other joint managing director and promoter, M K Hamied - Rs 7.33 crore (Rs 73.3 million).

Larsen & Toubro had eight employees netting over a crore during the year, while Hero Honda had five (four expats and an Indian), ICICI Bank five and ITC three.

A CEO, experts will tell you, can cost anywhere between Rs 1 crore and Rs 3.5 crore (Rs 35 million). A divisional head too will not come for less than a crore.

These salaries have been growing at 30-40 per cent in the last few years. If the trend continues, their salaries could double again in the next three years!

Then there are stock options. Numbers crunched by the Business Standard Research Bureau show that there are 194 India Inc employees sitting on stock options of Rs 1 crore or more. Some of them could easily sail into the annual listing of Indian billionaires.

Four of them have stock options worth over Rs 100 crore (Rs 1 billion) - Tech Mahindra managing director Vineet Nayyar {Rs 216.11 crore (Rs 2.16 billion)} leads the pack, followed by L&T chairman & managing director A M Naik {Rs 165.15 crore (Rs 1.65 billion)}, Infosys Technologies directors T V Mohandas Pai {Rs 134.28 crore (Rs 1.34 billion)} and Srinath Batni {Rs 114.54 crore (Rs 1.15 billion).

Till the stock markets went into a bull run a couple of years ago, this could have easily been the valuation of a mid-sized company.

Headhunters say that overseas postings are no longer a big draw for Indian professionals - such has been the improvement in pay packages.

"The compensation arbitrage has gone down. Going to Singapore, West Asia or Europe is no longer a craze," says Sudarshan.

"Non-resident Indians are very happy to return as semi-expats," adds Vipin Kapoor, executive chairman of Singapore-headquartered Maxima Global Executive Search.

Kapoor was CEO of Sinar Mas India till 2001, when the company was acquired by Gautam Thapar-led Ballarpur Industries.

Now, sitting on the other side of the negotiating table, Kapoor feels the money being offered to CEOs has improved dramatically. "Even in manufacturing, the numbers being talked about are at least 50-70 per cent higher," says he.

Till the 1990s, the salaries of managing directors - that is, CEOs who came under the purview of the Companies Act - were capped. The rules in those days stipulated that managing directors could not earn more than the President of India.

Thus, in the 1970s, they could earn a maximum of Rs 7,500, a figure that doubled to Rs 15,000 in the mid-eighties. Add in punitive tax rates upwards of 90 per cent at one stage - and the limitations on take-home salaries were huge.

Most large companies compensated by offering them lavish lifestyles in terms of large houses, multiple cars, armies of servants and pretty much subsidising as many expenses as the tax laws would legally allow (such as taking a tax break on spare rooms designated as official guest rooms).

Many proprietary-run groups did without managing directors and designated their chief executives "president".

This designation was outside the purview of the Companies Act and therefore not subject to limitations on pay and perks. This worked for family-owned groups where family members wanted to retain managerial powers with themselves.

Managing directors, on the other hand, had "substantial powers of management" as defined under the Companies Act, so though they had curbs on remuneration, they had far more powers than a president.

Many professionally-run companies preferred the MD designation for this reason, but it was ultimately a Catch-22 situation. Managing directors had powers but curbs on remuneration. Presidents had no curbs on remuneration but their powers were limited by promoter whims.

Things have changed beyond recognition now. Most CEOs earn in multiples of what President A P J Abdul Kalam gets, though he gets to live in a bigger house and has an enviable fleet of cars.

This is because the supply of CEO has fallen way short of the demand with the corporate sector growing rapidly in the last two-three years.

"There's a huge talent constraint, especially at the higher levels. Economic growth has far outstripped talent generation. There's a very small pool of talent with global perspective or exposure," says Anjali Bansal, the head of Spencer Stuart India.

Adds Sudarshan: "India would need over 750 CEOs and over 5,000 functional leaders over the next 24-36 months, based on current and projected economic activity."

Some of the experts feel that the stock market boom too has played a role in the phenomenal rise in salaries - effective CEOs are required to keep investors happy and they come for a hefty price. "It's a case of value contribution versus value expectation," says Bansal.

In sectors like television, salaries have risen because the burnout in creative teams is very high. Most multinational broadcasters have started paying CEOs Rs 4-5 crore (Rs 40-50 million) a year - both Star and Sony would be in this range, says a Star India source. Disney and Discovery are known to pay between Rs 2 crore (Rs 20 million) and Rs 3 crore (Rs 30 million) a year.

Though the hike has been across the board (a leading sugar company too is known to have hired a new CEO for close to Rs 2 crore a year), top-end salaries have risen particularly fast in sectors like private equity, insurance, retail, investment banks and telecom, where growth has been phenomenal in the last few years.

Bonus cheques handed out to investment bankers at the end of the year are the stuff fantasies are made of. With mergers and acquisitions topping $26 billion in the first nine months of 2006, I-bankers, who charge at least 1.5 per cent of the deal size as fees, earned upwards of $390 million during the period.

In 2005, they are estimated to have earned at least $435 million from closing deals worth $29 billion.

Globally, private equity firms work on the 2/20 principle: They get 2 per cent of the fund for salaries and 20 per cent of profits on all deals.

In 2006, about 25 domestic private equity firms had put together funds of $8 billion. With the stock market booming, many of them got huge "carry" as well.

"The profits are almost 100 per cent. The numbers can cause serious heartburn to others," says the honcho of a private equity firm who operates out of a luxury suite in a deluxe hotel.

Davinder Singh Brar, the ex-CEO of Ranbaxy Laboratories and now the chairman of GVK Life Sciences, says that companies that are heavily dependent on international earnings are likely to pay more than companies focused on the domestic market.

His company has hired a business development head for the US for between $250,000-275,000. This, mind you, does not include stock options and bonus.

"Research and development people too are demanding the moon," he adds. When Brar was heading Ranbaxy, the company hired Rashmi Barbhaiya from the US to head its R&D function reportedly on a salary of a half-million dollars.

What has added most to the wealth of top executives is stock options. So, when Merrill Lynch investment banker Rahul Dhir was offered the hot seat at Cairn India, what probably helped him make up his mind was the Rs 100 crore (Rs 1 billion) stock options on offer - a third would vest the day after any successful float.

The pace has quickened ever since Finance Minister P Chidambaram announced in his Budget speech that stock options would be brought under the fringe benefit tax. Within 40 days of the announcement, numbers collated by BSRB show that 48 companies handed out 66.9 million shares valued at Rs 3,465 crore (Rs 34.65 billion) to 281 employees.

And it is not just the money on offer - perks too have improved beyond recognition. CEOs are paid an all-expense paid overseas holiday for a fortnight for the whole family. And this comes with a compulsion clause - you have to take the vacation.

Many companies offer a commitment to investment in training and development at top management schools like Kellogg or Harvard.

Memberships to prestigious clubs is the norm with all expenses (dinner, games, drinks, spa and gym) taken care of. Companies offer unlimited expense on corporate cards as it is uncouth to set a limit. CEOs are told to splurge on entertainment.

Top executives get to use company-owned jets, which were earlier the sole preserve of the owners. The head of a Delhi-based company which deals in corporate jets finds that CEOs and other senior employees are now being consulted by owners before buying an aircraft.

He is negotiating a deal with a professionally run software firm for a corporate jet, with the owners of the company nowhere in sight.

"Company-owned jets for senior executives are more of a necessity than an attraction," says Rajeev Karwal, the founder of Mialgrow Business and Knowledge Solutions and the former CEO of Electrolux.

Gone are the days when Sus-him Mukul Dutta, the former chairman of  Hindustan Lever, would drive a Contessa to work, or Peter Mukherjea of Star India a Cielo or a Gypsy. (The only exception was Russi Modi of Tata Steel who had a Range Rover to negotiate Kolkata's roads during the monsoon rains.) Now, it's difficult to find a CEO of even a mid-sized company without an S-class Mercedes.

Bharti Airtel chief Sunil Bharti Mittal bought 15 Mercs for the senior management team when his rival Anil Ambani's Reliance Communications started poaching from other telecom companies. Corporate observers say Mittal did it to keep his team intact.

In fact, all top car companies like DaimlerChrysler, BMW and Audi confirmed having received "fleet" orders from companies.

With rising salaries and perks come more responsibilities. "The CEO is today doing a part he is not equipped to do. That is the 'opportunity' and the 'challenge' part. His moves have stock market implications. Pressures on him have gone up. His biggest challenge is to meet the board members expectations - which are huge. If opportunity is big, so is the challenge. He is juggling too many balls in the air. There is tremendous pressure on personal life. So he demands a premium for that," says ABP Ltd CEO Pramath Sinha.

"The life-cycle of a CEO is also reducing. It is between three and five years. Earlier, CEOs lasted a lifetime in a company," adds Reliance Entertainment President Rajesh Sawhney.

Such is the busy schedule of Dhir of Cairn India that he has taken membership of three strategically located gyms in Delhi so that at least one is within reach.

"The biggest luxury that a company can give its senior executives is some private time," says Karwal.

Still, it is going to be a long time before top Indian CEOs can get even close to what their counterparts in the West are getting. Alan Mullaly became the CEO of Ford last year on an annual package of $18.8 million.

Jagdish Khattar, the managing director of Maruti Udyog, India's largest car company, got Rs 1.47 crore - less than half a million dollars - in 2005-06.

A survey by Alpha magazine showed that the world's top 25 hedge fund managers took home almost $15 billion last year - more than the national income of Jordan - and three of them took home more than $1 billion each.

Still, nobody is complaining.

Kausik Datta, Chanchal Pal Chauhan, Nupur Amarnath contributed to this article

Bhupesh Bhandari & Shuchi Bansal
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