Print Email to Friend| Posted on 26 March 2012

BUSINESS   WORK STATION

Up, up and away

A CEO in India often draws 2.6 times more than his business head, raising doubts over how long this momentum can be sustained

By Sridhar Ganesan

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INDIAN CEOS have always been known, and perhaps hired, for their on-ground ability to manage day-to-day operations. Unfortunately, this trend has had the unexpected impact of creating a scarcity of CEOs with long-term vision and the ability to carve out a business strategy for the future.

This has been the key finding in our latest executive compensation research that points to an unprecedented rise in CEO compensation to levels never seen before.

In a measure, CEO compensation is a function of demand and supply, where the former far exceeds the latter in the Indian context. As a consequence, we are witnessing a few interesting trends emerging. The top metric that our report throws up is that the average CEO salary in India is over Rs 2 crore, on a cost to company (CTC) basis. This can shoot up to Rs 7 crore in case of larger organisations which have greater business complexity and geographic spread for a CEO to deal with.

These compensation figures reflect an increase of about 30 per cent over the last year (2011) wherein most CEOs in the top bracket were found to be pocketing between Rs 1.4-1.5 crore, while those at larger, more complex organisation were taking home Rs 5.25 crore or thereabout. Our calculations also revealed that the average CEO’s salary is at least 2.6 times more than that of the rest of the senior managers or business heads in terms of CTC, excluding long-term incentives (LTIs).

What can we attribute this exponential rise and difference to? The first reason is of course a demand-supply gap. The Indian CEO market has always had a vast pool of ‘operationally-excellent’ CEOs, but an acute scarcity of ‘managing-business’ CEOs. This prompts companies to shell out a premium for the kind of CEO they want: essentially, someone who can look to the future rather than carve out a short-term plan.

Second, confronted with this lack of supply, companies are becoming more open about recruiting with a sector-agnostic focus. We are now witnessing a rise in cross-sector employability of CEOs, or ‘lateral CEOs’.

To cite a case, a global cement company recently hired an investment banker to head its India operations. In other instance, the CEO of a manufacturing company left to join an IT company as head of their manufacturing vertical. These instances point to an increasing cross-sector movement of talented candidates hired for the top job.

Interestingly, these trends have begun to cascade to the next line of executives.

The average compensation for this line, a rung lower than the CEO is now Rs 1 crore ($200,000) or more, on CTC basis. Further, there is very little compensation differential between Heads of Sales & Marketing and Operations (business roles) on one hand, and Heads of HR, R&D, Chief Information Officer (Enabler roles) on the other. This suggests that organisations have begun to value top teams as equal stakeholders in business performance in order to ensure that decision-making and accountability are now more decentralised.

Source: Hay Group

Another important message that we found during the course of our survey is that although they are willing to pay more for the right candidate, organisations are also careful about getting a high return on their investment.

This is evident in the widening variable pay component — 15-30 per cent — of the total CTC. This performance focus is also evident in long-term incentives (LTIs) for CEOs, managing directors as other senior executives who the organisation is keen on retaining.

The report cites that 29 per cent of the respondents were receiving some format of lti at the CEO/MD level and another 32 per cent reported having an lti plan for the rest of the top management team. A majority of them (89 per cent) use just one lti vehicle and 11 per cent said they preferred cash-based incentives. As it turns out, executives with the subsidiaries of foreign multi-nationals are also covered under the parent company’s LTI plan.

A 2011 article in the TIME magazine had listed ‘CEOs’ as India’s leading export. Today, thanks to the crunch on the kind of CEOs that are being sought, they also happen to be the country’s more prized resource.

The author is rewards practice leader of Hay Group India.

What a waste!

We produce five lakh engineers annually, only 17.45 per cent of whom are employable

Radhika Sachdev
New Delhi

CHEW ON this: 80 per cent of our engineering graduates are unemployable. These statistics were endorsed by none other than the Human Resource Development minister Kapil Sibal during a release of the National Employability Report 2011 on engineering graduates prepared by Aspiring Minds, a for-profit agency that positions itself as an ‘employability assessment company.’

Although their sample size was small 55,000 students who graduated in 2011, their finding cannot be summarily dismissed as it corelates with similar findings from the past, the most recent being a Hiring Outlook presented by naukri.com that testifies to a talent crisis in almost all sunshine industries. Their survey is based on responses gathered from 1,000 recruiters, across industrial sectors.

Among other things, this survey points out that 61 per cent of recruiters admit to a talent crunch; 44 per cent say finding the right talent is difficult with four to eight years of experience and 29 per cent find it difficult to find the right-skilled people with one to three years of industry-relevant experience.

“It’s a classic demand and supply gap, irrespective of the sector” says V Suresh, executive VP and National Head of (Sales) with Naukri. “There is an oversupply, but not of a very high quality in terms of knowledge, competency, skill and attitude.”

The problem, he says is most acute in information technology, banking, financial services, telecom, pharma and automotive sector, where a lot of high-end research and development input is required. Surprisingly, the crunch is also acute in the construction sector.

Declining to quantify the cost to the company in induction training of an under skilled employee, he says there are certain aspects of a job that are non-billable. “How can you quantify ‘bench time,’ ‘quality of projects delivered’ etc., which can only be considered as opportunity lost, and this cost would also vary from industry to industry,” he maintains.

The crisis, he says, is serious at the level of lateral hires — five to 12 years of experience — who probably don’t get groomed into their respective profiles, and also at the entry level.

“The creamy layer, the top 10-15 per cent of the engineering or B-school grads are still being lapped up by the IT industry, the Infosys and the TCS of the world, followed by the banking and financial services sector, so a lot also depends upon how these companies brand themselves on campus,” he explains.

“Construction would lower on the radar as it is seen as a non-glamorous industry. Construction engineers don’t occupy cushy, air-conditioned offices. They are pushed out on the field. I am not surprised that the talent pipeline is the shortest there,” he rues.

‘The market is over-regulated and undersupervised’

Pandia Rajan of the indian staffing federation tells Radhika Sachdev why temps are trending

Pandia Rajan

What’s the legal definition of a temp worker?
The International Labour Organisation (ILO) defines temporary worker as ‘workers with either a contract for service or a contract of employment with the agency who finds them work’. Such workers may be able to use it to try out different kinds of work, as a stepping stone to the job they want, as a way of entering or re-entering the job market or of working more flexibly to suit their circumstances, and/or to move jobs easily and at short notice. Flexibility for both employee and employers is a key feature of a temp worker. In India the Centre for Legislative Research and Advocacy (CLRA) governs temporary workers.

In other words, a temp worker is not on the rolls of the company he is working with, but is represented by a staffing company?
That’s right. There is no employment relationship between the staffing agency employee and the user company, although there could be legal obligations of some kind. It’s the staffing agency that issues the temp hire a fixed duration employment contract. The employment is often called ‘temporary work’, ‘temping’ or ‘temporary staffing’. The hiring firm pays fees to the staffing company, and the staffing company pays wages to the temp hire. There is no legal agreement that is binding on the company with regard to tenure, remunerations, working conditions or social security. The temp staffing agencies on the other hand provide all the statutory benefits including social security to the ‘temp workers’ on their rolls.

Typically, what’s the tenure that a temp staffer serves with a particular company? What’s the salary difference between a temp and a regular?
The contract duration varies between two to 18 months — this is very close to the global mean of three to 24 months. There may or may not be any difference with regards to compensation. In some sectors, especially it, they are comparable or almost at par with the permanent ones, while in certain public sector undertakings there could be wide discrepancies.

How is the industry growing in India and what factors are fuelling this growth?
The industry is growing at around 10-15 per cent, year on year. Flexibility — both for employers and employees — is fuelling the growth. The sector provides innovative and reliable solutions that enable organisations to manage seasonal fluctuation in demand and adapt their workforce needs, accordingly.

There are no firm figures around the size of the temp staffing market. We (ISF) have commissioned a survey let’s see what picture throws up. One estimate is seven lakh workers in the organised market and a total figure of 90 million. Another estimate added close to 75,000 temp jobs in 2010-11.

Which are the sectors where temp hiring is common?
Almost all the sectors employ temp staff, but it’s more popular in the services sector. Profile-wise, frontline staff — customer services, sales and customer prospecting, and telemarketing — would account for 80 per cent of the deployment. Technical functions such as installation and commissioning, and repairs and maintenance make up for 15 per cent, while three to four per cent would be deployed in senior management positions, as technical specialists and management experts.

Is the temp industry under-regulated in India?
In our opinion, the market is over regulated and under supervised. There are myriad labour laws that govern and protect the rights of the workers but given the large size of the unorganised sector, there are issues that need to be addressed. We are working towards streamlining the labour laws and strengthening regulatory supervision to curb worker exploitation and other malpractices.

Is temping more common at the entry level or is the trend also visible at mid and senior management level?
Although a bulk of temping happens at entry and junior levels, the trend has surely moved up to senior levels as well.

Do we have something akin to ‘turnaround mangers’ in India?
Turnaround managers are people brought in with specific mandates for a fixed period of time. As our labour market matures, we will find instances of such mandates going up. As of now, they are generally moved from within the hierarchy and not outsourced to staffing agencies.

Are we moving into a time when every employee will be a temp hire?
There are several structural shifts in demography, globalisation, volatility and new attitudes to work that will give rise to creative employment solutions. The need for flexibility will fuel demand for temp staffers. While the model is here to stay, we don’t see every employee turning into a temp hire. Temporary employees fill in short term positions and auxiliary functions and are not meant to take over the core functions. In fact, this model allows job market outsiders such as fresh graduates, housewives and the first-time job seekers to enter the job market.