Global case in point: in 2014, CEO Tim Cook wasn’t the highest-paid executive in the world’s most valuable firm, Apple. Senior talent hired from outside was paid more to make their job change seem worthwhile.
Some Indian cases in point: Ravi Kapoor, head of investment banking at Citigroup Capital Markets, India, is earning more than Pramit Jhaveri, the firm’s India managing director.
Some chief investment officers in mutual funds such as HDFC AMC, Franklin Templeton and ICICI Prudential AMC earn more than managing directors and India heads of business, finance firm insiders say .
Prashant Jain earns more than Milind Barve, managing director at HDFC AMC. Anand Radhakrishnan, the chief investment officer at Franklin Templeton, earns more than big boss Vivek Kudva. S Naren of ICICI Prudential AMC gets a fatter paycheck than Nimesh Shah, managing director. Aashish Bhinde, executive director, Avendus Capital, is paid more than CEO Ranu Vohra. Bhinde specialises in the red-hot growth areas of digital, technology and ecommerce.
Most companies are extremely reluctant, when they are not listed, to share compensation information. Even listed companies are not inclined to talk in detail about compensation structures. But many conversations ET reporters had with headhunters, experienced industry watchers and senior insiders pointed to the fact that companies paying a CEO less than another executive is not as rare as supposed.
There are big corporate names in our list of 22 BSE200 companies that do not pay their CEOs the most: M&M, Tata Motors, Adani Enterprises, Adani Ports, Reliance Power, Reliance Communications, Reliance Capital, Titan Company and Kotak Mahindra Bank.America Inc is entirely familiar with the concept of not paying the most to a CEO. For example, a September 2013 report in rediff.com showcased 22 American executives who get paid more than their company top boss.
Financial firms are among those most likely to pay a star employee more than a CEO, but it can happen pretty much in any sector, our data show.
RECOGNISING KEY TALENT
There are good reasons why a company need not pay most to its CEO. Talent that contributes spectacularly to the top line or to any other crucial metric can get paid the most.
Headhunters say star investment bankerstraders in financial firms, CFOs with listing experience in companies that are about to go public, specialist talent like auto designers in automakers, globally experienced energy experts in renewable energy companies, expatriate talent recruited by Indian companies with a local CEO, a high-performing regional head of a global company, star sales managers in big companies are some of the categories where executives are often paid more than a company CEO. Hotels and hospitals, headhunters said, sometimes pay, respectively, star chefs and star surgeons more than CEOs.
Pallavi Kathuria, who leads technology practice for the APAC region at Egon Zehnder, the world’s premier leadership advisory firm, says there are many reasons why a CEO needn’t be the highest-paid.
“It happens when companies are looking for talent critical to their businesses. For instance, a CFO with listing experience or a technologyproduct specialist will come at a premium and can get paid more than the CEO for hisher specific experience,“ Kathuria says.
Arun Dasmahapatra, chairman, Heidrick & Struggles, says he has done three searches in the past two quarters where CXOs were paid more than CEOs. “The CEO was part of the decision to pay higher salary to the incoming CXO,“ Dasmahapatra says. That last point is a critical one, headhunters say.As one corporate recruiter, with long experience in India Inc, said: “A really smart CEO should be happy to decide that a critical talent needs to be paid more than himher, because the job of a CEO is to do the best for the company.“
Another corporate veteran said some corporate talent is like movie stars in studios. “A star will get paid more than the CEO of the studio and the CEO will go all out to recruit that movie star because the CEO’s job is to make the movies saleable,“ this corporate veteran pointed out, saying star chefs and star surgeons get paid more than hotel or hospital CEOs for the same reason.
“It is all about who is adding how much to the bottom line. Managements and boards are today ready to break the conservative way of compensating talents and paying people who matter more than probably the top-level guy,“ says a senior executive at a global executive search firm.
CEOs take note.