New Delhi/Mumbai, December 4, 2012: Hay Group, global management consultancy, today released the annual Top Executives Compensation Report 2012-13, revealing that the compensation of CEOs and their top executives is set to increase by a modest 9 per cent & 9.4 per cent respectively in the coming year. This exhibits a dip from the double-digit growth witnessed in previous years.
The Top Executive Compensation Report 2012-2013 features insights from about 158 organizations across the sectors of Auto, Chemicals, Basic Resources, Oil and Gas, FMCG, Retail, Construction and Materials, Telecommunication, Utilities, Industrial Goods, and Transportation. It is designed to enable organizations to understand prevailing compensation practices and trends in India.
Sridhar Ganesan, Rewards Practice Leader, Hay Group India explains, “Hay Group research has found that markets, strategy, culture, and ambitions are the four real drivers of modern-day executive compensation. This is important to keep in mind as data analytics on executive compensation have to be interpreted beyond just the stated numbers”.
Statistical analysis between the Hay Level (proxy for job contour in terms of scope, scale, size, complexity, etc.) and Total Cost to Company (CTC) found a co-relation of 0.26 – indicating that other factors, besides just the organization’s contour affect CEO compensation.
Emotional Intelligence helps you measure and develop high performance behaviors.
Hay Group’s research, in partnership with Daniel Goleman and Richard Boyatzis, continues to demonstrate that emotional and social intelligence differentiates outstanding performers from average employees.
Emotional Intelligence (EI) helps you measure and develop these star qualities in your employees. It uses the Goleman and Boyatzis Emotional and Social Intelligence Competency Inventory (ESCI) – the most validated measure of EI behaviors on the market.
Ask any group of businesspeople the question “What do effective leaders do?” and you’ll hear a sweep of answers. Leaders set strategy; they motivate; they create a mission; they build a culture. Then ask “What should leaders do?” If the group is seasoned, you’ll likely hear one response: the leader’s singular job is to get results.
But how? The mystery of what leaders can and ought to do in order to spark the best performance from their people is age-old. In recent years, that mystery has spawned an entire cottage industry: literally thousands of “leadership experts” have made careers of testing and coaching executives, all in pursuit of creating businesspeople who can turn bold objectives—be they strategic, financial, organizational, or all three—into reality.
Still, effective leadership eludes many people and organizations. One reason is that until recently, virtually no quantitative research has demonstrated which precise leadership behaviors yield positive results. Leadership experts proffer advice based on inference, experience, and instinct. Sometimes that advice is which precise leadership behaviors yield positive results. Leadership experts proffer advice based on inference, experience, and instinct. Sometimes that advice is right on target; sometimes it’s not.
Like parenthood, leadership will never be an exact science. But neither should it be a complete mystery to those who practice it. In recent years, research has helped parents understand the genetic, psychological, and behavioral components that affect their “job performance.” With our new research, leaders, too, can get a clearer picture of what it takes to lead effectively. And perhaps as important, they can see how they can make that happen.
The business environment is continually changing, and a leader must respond in kind. Hour to hour, day to day, week to week, executives must play their leadership styles like a pro—using the right one at just the right time and in the right measure. The payoff is in the results.
These days we can take a good level of technical knowledge and intellectual ability in a given job for granted. These are qualities related to our IQ. Our Emotional Quotient (EQ) measures personal qualities such as empathy, adaptability and persuasiveness. These qualities are becoming more and more important in a world fragmented by technology and changing work structures. How important? We reckon that EQ is twice as important as IQ in determining future career success (not to mention what is does for your social life). And it can count for even more.
It’s a growing phenomenon. The emotional abilities of today’s children are dropping even as their IQ is rising. So Emotional Intelligence is becoming more and more important as a way of recognizing tomorrow’s leaders. A low level of Emotional Intelligence can actually hold you back; think of the boss who loses their temper. Out of control emotions can render the smartest people stupid. The smart thing to do is work on your EQ. It’s not a fad, it’s not a trend. EI is the result of a long history of analyzing social intelligence (otherwise known as ‘what makes people tick’).
Another demonstration of the value of Emotional Intelligence comes from the financial sector. Hay Group provided emotional competency development support for 45 sales people in the insurance industry. Our client gave high quality product and sales training to a matched sample of 45 other sales people. Their intention was to run a comparison of the two groups for a full year. They called a halt to the action research after seven months because the difference in sales results was so large that they could not afford to wait another five months before training the control group.
Goleman’s book had all the earmarks of a classic fad: a bestseller featuring ideas and concepts borrowed from outside the business world; articles and follow-ups in dozens of professional magazines, including the Harvard Business Review; seminars at scores of professional meetings and conventions; and serious discussions in hundreds of executive suites and HR departments across the country and around the world. But a funny thing happened to emotional intelligence on the way to being forgotten. It wasn’t.
In fact, far from joining other management fads that have come and gone in the ensuing decade, the qualities that comprise emotional intelligence are more critical to the success of business leaders than ever. The reasons for this enduring value can be found in the ways the business environment has evolved since the 1990s – including the economic uncertainty of the last few years– and in how the core qualities of emotional intelligence help leaders strengthen their effectiveness in that changing environment.
Perhaps more to the point, however, emotionally intelligent leadership delivers results. Research has confirmed a significant performance gap between leaders who display the qualities of emotional intelligence and those who don’t. Hay Group’s own work has revealed that the most admired organizations report their executives demonstrate higher degrees of emotional intelligence – and that the lack of these qualities contribute significantly to the failure of high-potential executives. Emotional intelligence has endured because it really is essential to effective organizational leadership. And that’s even more true now than when it was introduced in 1998.
Many employees are well motivated. They want to provide quality service to their customers but are hindered by weak systems, heavy bureaucracy and conflicting pressures. Organizations can function on this motivation alone, at least in the short term. But if employees lack the support and business processes to get their jobs done, they can ‘burn out’ from the effort of just trying to do a decent job. The result is a workforce of frustrated people. If employees are engaged but not ‘enabled’, around one-third of the workforce is likely to be making plans to leave. (This figure rises to a massive 76 per cent if employees are both unmotivated and not enabled).
Frustrated employees tend to behave in one of three ways:
1. Break through the performance barrier – through force of effort, some highly engaged employees find ways to overcome the obstacles to getting their jobs done.However these high-value individuals are at risk of burnout in the medium term,usually after about six months
2. Stop trying – other less driven employees reduce their efforts to match their limited opportunities to succeed
3. Leave – yet others will seek greener pastures where their strong motivation to succeed can be matched with more supportive working conditions. This creates an unfortunate drain of what is often an organization’s best and brightest talent.
On top of this ‘mindset’ challenge, there is also the issue of the survey approach itself. For surveys to deliver real ROI, they should be connected with strategy rather than be run as a standalone HR exercise.
When developing our client-specific survey solutions, we strike a unique balance between engagement and enablement to provide you with the information you need to take action.
By including both components in our surveys, we are able to provide clear direction on systemic issues as well as issues specific to what managers need to do to create effective work environments.
The impact of the Arab Spring has led to several announcements by governments regarding increases in pay and allowances for their national population, mainly in the public sector.
From a recent ‘Hay Group Middle East Flash Survey’, c. a third of the organizations surveyed in the Middle East are looking at expansion in revenue growth in the coming year, indicating a change from the sombre atmosphere of early 2011. They have forecast a healthy 5-15% revenue increase compared with global organizations. FIGURE 1 above highlights the 2012 pay forecast from the responses received from 1,500 organizations in 11 countries. It is clear that salary increases will outpace inflation.
All countries in the MENA region are forecasting a modest-to-healthy increase in salaries in 2012, although this varies depending on inflation rates. From government initiatives in the Gulf countries to recruit nationals, to revisions in pay and benefit policies in North Africa, to salary reforms in the Levant, all these have an impact on pay. A combination of civil unrest and legislation means many changes still lie ahead for compensation and benefits in the region.
Corporate Governance and Executive Pay - A global study conducted by Hay Group reveals executive pay to be at the top of the list of corporate governance issues.
Middle managers are the unsung heroes of any organization. They act as links between top management and the front-line. They are also translators - responsible for understanding the strategy envisioned at the top, translating it into meaningful action plans and then despite their mission-critical role, they are often neglected or even ridiculed as barriers or “glorified postmen”. Let us examine the issue of remuneration, for instance.
In tandem with India’s growth story, the ratio of CEO pay to the average worker’s pay has widened significantly in the past few years. Hay Group’s Top Executives’ Compensation Report 2012 stated that CEO compensation in India has gone up by close to 30 per cent in the last year, pegging CEOs of large organizations at Rs. 7 crores per annum. Further, the amount that CEOs’ take-home pay is approximately 2.7 times greater than what their executives one-level down are receiving.
At the other end of the spectrum, fresh graduates from this year’s XLRI cohort have been reported to be promised an average of Rs. 16.48 lakhs. A back-of-the-envelope calculation shows the inequity of the situation: Consider a middle manager with five years of experience and has loyally worked his/her way up the hierarchy. This middle manager would have started in the post-India Shining era, at the meagre base pay offered to a trainee, and had earned a pay raise of 12 to 16 per cent a year. Contrast this against today’s fresh graduate starting with a base pay almost equivalent to that of the above-mentioned middle manager. It doesn’t make sense, does it?
If we expect that our next generation of leaders to come from middle management, then this state of affairs cannot continue. However I am not advocating that we simply elevate their pay levels, though I am sure the middle managers among us won’t say no to more money! Indeed there is a whole host of other ways in which they can be recognized and
Today, we are facing an acute shortage of leadership talent, and this is one of the reasons why CEO salaries gone through the roof. Given that the top level is enormously cost-heavy, it the onus lies on the shoulders of our middle managers, to rise to the challenge of constituting the bench strength as tomorrow’s leaders.
We’ve all sat in townhall meetings where the CEO makes the annual strategy presentation to the middle managers. Ever wondered what is going on in the minds of your colleagues?
According to a Hay Group FTSE350 research:
Your company’s credibility is its history of keeping promises. While the CEO makes the promises to customers, shareholders and employees, it’s really not in his/her power to keep them. In fact, it is the middle managers who fulfil them or break them.
If middle managers are supportive of senior executives, they can foster high levels of confidence in the organization’s leadership and direction. If, on the other hand, middle managers signal to employees through their words or worse, actions that they lack faith in organizational leaders, employees’ trust can be expected to decline rapidly. Performance will also quickly follow the downhill slide.
It is time to look at our middle layers. Indeed, unless treated properly, they can become the enemy within. As Napoleon Bonaparte had once said, ‘There are no bad soldiers, only bad officers’.
Sridhar Ganesan (Practice Leader – Reward Services – India and South Asia, Hay Group)’s interview on Human Factor
Sridhar Ganesan deliberates the phenomenon of Indian CEO salaries touching counterparts in the Western world.
Sridhar works to solve any compensation problem that proves intractable, and was instrumental in building the compensation and benefits survey practice of Hay Group in India. He works in the areas of cascading business strategy to define operating models, organisation design, job modelling, and developing reward strategies. Interview excerpts:
Q. Are you worried that India is treading on the same path as the US in high executive compensation, despite factoring in the high rate of inflation?
A. Over the year, Indian CEO salaries have touched Western world counterparts on a purchasing-power-parity basis. The talent pool for Indian CEOs in India reflects two important trends:
1. Employability of the CEOs across various sectors.
2. The CEO pool has become global. Executive search firms are looking at a global pool for recruitment of CEOs for Indian companies.
The trend reflects in some of the India CEO appointments. For instance, Heidelberg Cement India, the global cement major recruited an Indian investment banker as the CEO of its India operations. Tata Motors, the Indian automotive giant recruited an expatriate to become the Group CEO.
These developments make two key trends visible. First, typical Indian CEOs, besides being operationally excellent, are lacking in terms of managing business. Therefore, companies are looking at a scarce pool of holistic managers, which drives compensation high; otherwise, expatriates could come in for short-term assignments and create the next line of managers. Global MNCs prefer to consider India as an entity in their global ecosystem; therefore, they align India to the global job rotation policy/compensation programmes. Second, promoter-owned organisations have typically had the owner/promoter as the CEO. Growth-oriented companies have been changing the convention, by bringing in professional CEOs, while the owner/promoter drives governance and business direction. This also boils down to recruiting the best, which implies that the multipliers in salaries are still a reality. Taking an example, an engineering company could not recruit a Sales Head for a year as the salary ranges that were being asked for were above the provided CEO remuneration. Eventually, the company decided to move into the development of internal talent.
With all the above happening, remuneration committee activism is also becoming a reality, as we deliver assignments for them. The remuneration committees are deliberating the rewards philosophy and quanta for the top team in detail. They are no more rubber stamps.
In summary, the talent scarcity at these levels still drive multipliers to executive compensation, but highly active remuneration committees are bringing a reality check to the process.
Q. What are the key differences in executive compensation of MNCs operating in India and the home-grown Indian companies?
A. MNCs in India have the positive legacy/framework, of roles and salary ranges being defined clearly; they have an objective orientation where executive roles and their respective salaries fit within a framework, factoring in both internal affordability and external competitiveness.
Indian companies have always been people-centric at the executive level, which has also caused the maximum chaos as they build global organisations. They are unable to deal with top management inequities in an objective and transparent manner. Indian companies have started moving along this journey, so executive compensation has some science to it, rather than ad hoc decisions of some stakeholders. This will also help salaries to become numbers affordable to be paid by companies and aligned to market principles.