Are CEOs' hefty pay checks justified?

Country's second largest IT services company Infosys has regained its bellwether status under the CEO Salil Parekh. Parekh, who joined the company at a time when Infosys was facing internal turmoil, is not only able to stabilize the Bengaluru-headquartered firm, but has also led the firm to be the top performer among its peers. However, there is some unease regarding his hike in compensation in recent days. According to the notification sent to shareholders for company's upcoming annual general meeting (AGM), Salil Parekh's new employment agreement seeks to increase his compensation by 88 per cent to Rs79.75 crore a year. Once approved, this will make Parekh one of the highest-paid executives in India.

This raises several questions with regard to executive compensation in the current environment. A critical parameter for gauging the executive compensation is the median salary. It means how much CXO level executives earn as compared to most employees of the company. In case of Infosys, the current median salary gap between the CEO and an average Infosys employee stands at a ratio of 229 (excluding stock-based compensation) and 872 (including stock-based compensation). This will further widen once the new salary package is approved by the shareholders. However, this comparison is not very different for other CEOs of most tier-I IT services companies. Tata Consultancy Services' CEO and MD Rajesh Gopinathan's salary was 397 times the median remuneration of the staff in FY22.

Interestingly, CEOs of global IT giants are paid higher than Indian CEOs. In dollar term, Parekh will earn $10.2 million of compensation if the proposal gets shareholders' nod. In comparison, Accenture's CEO Julie Sweet is taking home $23 million, making her the highest paid in the IT services industry globally. Cognizant's CEO Brian Humphries has drawn $19.6 million in FY22. IBM's Chairman Arvind Krishna's salary stood at $17.56 million in FY22. These compensations include stock options that their companies provide. In India, Parekh will emerge as the highest paid CEO among its peers though. In FY22, Wipro's CEO Thierry Delaporte drew $8.29 million, while HCL Technologies MD took home $4.15 million. CEO of TCS, the market leader of domestic IT industry, however drew $3.32 million in FY22, which was considerably less than its smaller peers.

Given the wide divergence in salary compensations, public debate on increasing salaries of CEOs is a global phenomenon. While one school of thought argues that CEOs shouldn't draw such astronomical figures while employees are drawing such less amount; another school of thought says that capitalism is all about creating wealth and whoever creates wealth should be awarded accordingly. This is not a black and white debate. And there are many shades of grey that can creep into such discussions. Infosys' Founder and doyen of Indian IT industry, NR Narayana Murthy once said that giving huge salaries to just the CEOs does not solve any purpose and engineers should be paid more. He had suggested to reduce the median salary difference between CEOs and staffers. As there is no right and wrong way of approaching these things, we may have to settle for the reality, whatever that may be.