CXO compensation structure is changing – from pure salary to wealth creation opportunities: Ankit Agarwala of Michael Page

The compensation structure at the CXO-level is witnessing a shift, at least in some segments of India Inc – from pure salary dealings to wealth creation opportunities.

It has multiple benefits including no attrition midway of top executives, and bottomline being given priority in performance appraisals. Achieving predetermined goals would mean earning more via pre-determined means, such as profit sharing, high-value retention bonus, and vested shares, among others.

And these accelerators in CXO remuneration could go up to 100 percent or more than their cash salary. In the traditional pay structure, the cash salary would consist of fixed and variable pay.

The move is largely being witnessed in new-age sectors, including e-commerce and IT-enabled segments, such as fintech, HR tech, supply chain and edtech.

Companies in the healthcare sectortoo, especially the nimble ones, are adopting this mode of CXO remuneration, said Ankit Agarwala, Managing Director (India) of global recruitment and executive search company Page Group. Page Group comprises Page Executive and Michael Page, among others.

“Long-term wealth creation is how CXOs are now being attracted to jobs. It’s not just the money in hand that is being offered, but an opportunity to earn much more over a period of time,” Agarwala said in an interview with Moneycontrol.

“CXOs are being offered long-term wealth creation options though stocks, profit sharing, ESOPs and high-value retention bonus, among others. This is increasingly in vogue now and is a win-win with multiple benefits for both companies and the CXOs,” Agarwala explained.

He said post the pandemic, two key issues that have gained traction and generated debate are -- bottomline of the company compared to the topline, and employee retention.

CXO performance has a direct impact on company performance and the changing remuneration structure is a “medium to reward high-performing senior executives, who are staying longer and positively impacting the bottomline,” he explained.

Agarwala said the shift is being witnessed in early- to mid-stage firms in new-age sectors as these firms have the flexibility to match the expectations of the CXOs. But this is difficult in large global set-ups, as firms and their recruitment partners are tied up with global processes.

How it is happening

For example, suppose a CXO-level executive joins a company at a compensation of Rs 2 crore per annum, comprising both fixed and variable components of the traditional remuneration system. The hiring company would then offer the CXO-level executive the chance to earn an equivalent amount – Rs 2 crore -- if he/she remains in the company for, say, three to four years, and achieves the bottomline targets.

“But this will only become real, may be after three/four years, post joining. And if the person takes the organisation ahead, does a good job, and plays a role in the bottomline, then the payout goes up at least by (another) Rs 2 crore per annum through vested shares, profit sharing and other agreed means. These accelerators in the remuneration are up to 100 percent or more of the cash salary,” Agarwala said.

Naturally, the CXO would not like to leave after a short stint or mid-way, as that would lead to a substantial loss of earning potential. With his/her retention in the company for the long term, the issue of attrition at the CXO level would also have been effectively dealt with.

He said this trend is being observed in new-age sectors “which have investment-driven set-ups, because these are the sectors, which have the cash to match the expectations”.