Salary GAP

Rushikesh (Chartered Accountant - Manager Finance)   (2375 Points)

30 May 2008  


India Inc's top managers earn 19 times of entry-level staff

NEW DELHI: The million-dollar pay packets of top executives is exaggerating the difference between salaries paid at the top and bottom rung of India Inc. The ratio between the pay packet of top management and entry level white-collared employees is averaging around 19 times, which is much higher than the global level and is infact the highest in the world.

The corresponding multiple for most developed countries which figure in the bracket of 9-15 times, according to a Hewitt Associates study. Whats more the average salary multiple for China, another emerging market, is also much lower at around 8-10 times.

If anything, the data for India understates the salary differential. For instance, several CEOs are being paid in the Rs 5 crore range, which would mean that the differential multiple would be nearer 100.
However, Hewitt has taken a more liberal definition of top management. It has defined top management as those heading the key verticals of a company and their salary derived as an average of the top team. The average salary of the top management still hovers between Rs 50 lakh to Rs 1 crore. The entry level salaries in new economy sectors have pushed up the overall average for those in the lowest rung of a company but much lesser in comparison to those at the top.

Explains Hewitt Associates' business leader-consulting Sandeep Chaudhary: "The disparity is due to the push to build pay parity across the region for senior and top executives."

The cross-geography parity is already happening at the top level. "The salaries of top executives have globalised more quickly as compared to mid-level salaries. For instance, while a junior or mid-level manager in the US might be earning similar to a senior manager in India, a CXO in India earns almost the same as a CXO in the US," according to ITeS HR consulting outfit Aspire's CEO Amit Bhatia. This is reflected in the influx of many expat CXOs in India.

There's also the historical supply factor. "One of the reasons can be linked to the limited number of management graduates who passed out two decades ago and are in top management today. Companies are left with little choice but to offer huge compensations as an attractive tool at the executive levels," says Mercer India business leader-human capital Padmaja Alaganandan.

Labour market analysts attribute the trend to the abundant supply for entry level employees across sectors. The basic level of skill requirement at the low end stacked against the availability of personnel who are entering the job market, has kept pay hikes sticky at the lower level. This also reflects in the salary of the junior managerial staff.

As compared to this, the talent crunch particularly at the critical middle and top management level has been pushing up their price tags. Moreover as Indian companies are going global and adding size the demands of a CEO is matching up with any other multinational and so is their asking price.

Incidentally, the gap at the government level in India is much lower compared to that in the private sector. While the sixth pay commission suggestions for revised pay scales for government employees has come under attack over pay disparity, the pay multiple there is much lower.

The salary multiple purely on the basis of basic salary, given the new pay scales, is around 15 times between the lowest rung of employee and the cabinet secretary. An apple to apple comparison for the first level supervisor to the top bureaucrat would be even narrower.