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Institutional EYE

Commentary on Corporate Governance Issues

CEO Pay: Sector Analysis (FMCG)

This is the time of the year when boards are called upon to fix pay levels of its members for the coming financial year. This series on CEO pay, compiled by IiAS using data from comPAYre, IiAS’ cloud-based pay-versus-performance tool, is aimed at sensitizing boards on the remuneration trends across the market, as a basis for determining appropriate pay structures. This seventh piece in the series is focused on pay levels in FMCG companies.

Several companies in the FMCG sector have foreign ownership. Executive directors in such companies are often appointed from the parent leadership team and their pay is benchmarked to global peers. This creates an upward bias on the pay levels across the sector, which is reflected in the higher CEO remuneration (as compared to S&P BSE 500) and the fact that CEO salaries amount to almost 100 times of that of the median employee pay. While part of this can be explained by the large size and scale of operations (pay-to-profits ratio is low), the boards of some companies need to test for alignment with performance and ensure moderation. Executives in MNCs also often get compensated from their parent company - the quantum of which is rarely reported in the annual reports. While this is a common practice, if unchecked, it runs the risk of skewing the incentive structure and creating asymmetric loyalties. As a measure of good governance, companies must provide the aggregate remuneration paid to its executives from all sources – this will enable stakeholders to take a more informed decision on their pay proposals.

You can read this report by clicking this link.

A modified version of this report was published by Mint on 7 May 2018.

You can read the earlier reports by clicking the links below:

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