A notable development in the business landscape of India is the notable pay gap that has been seen between executives at new-age IT organizations and those at established IT corporations such as Tata Consultancy Services (TCS). Even though established and extremely profitable, the compensation packages of emerging tech companies—many of which are still losing money—far exceed those of the industry giants. This transition raises worries about the long-term impact on the industry and its workforce.
Credits: Money Control
Traditional IT Firms: Steady and Conservative
The most valued IT services business in India, Tata Consultancy Services (TCS), paid its key managerial staff (KMPs) a total of Rs 57 crore in FY24. With more than 600,000 workers worldwide, TCS is an example of the traditional IT industry’s cautious approach. Based on a steady and continuous development model, their compensation approach aims to provide shareholders with predictable returns while keeping CEO pay competitive but modest when compared to tech companies.
New-Age Tech Companies: Lavish Packages Amidst Losses
On the other hand, modern internet companies like as Paytm, Policybazaar, Zomato, and Delhivery have embraced a bold approach to remuneration, mostly through the use of Employee Stock Options (ESOPs) as a means of luring and keeping top personnel. These companies spend hundreds of crores on CEO salary, a large amount of which is attributable to ESOPs, despite encountering issues with profitability.
Paytm: Navigating Through Regulatory Changes
The stock price of well-known fintech unicorn Paytm fell 37% in FY24 as a result of regulatory issues that required significant company adjustments. In spite of this, Paytm spent a total of Rs 1,466 crore on ESOPs for its top executives, accounting for Rs 1,138 crore of those costs. This shows that its KMPs, directors, and their families accounted for 78% of the expenses related to stock options, underscoring the company’s significant reliance on stock-based remuneration as a means of rewarding its leadership.
Policybazaar and Zomato: Shifting Focus to ESOPs
Policybazaar, an insurance aggregator, revealed substantial remuneration figures for its top executives in FY24, with Co-Founder and CEO Yashish Dahiya earning Rs 121 crore, among others. However, their cumulative pay saw a 42% decline from FY23. Similarly, Zomato, the food delivery giant, allocated Rs 169 crore to its top two executives, Founder and CEO Deepinder Goyal and CFO Akshant Goyal, representing 33% of the company’s ESOP expenses.
Delhivery: Transparency in Compensation
Delhivery, a logistics unicorn, distinguished itself by designating seven executives as KMPs and disclosing their remuneration. The company spent Rs 165 crore on its top seven executives, 11% of its total employee benefit expenses. Co-Founder and CEO Sahil Barua alone earned Rs 66 crore in FY24. Delhivery’s approach demonstrates a higher degree of transparency in executive compensation among new-age tech firms.
Promoter-Controlled Companies: A Different Narrative
The compensation trends differ significantly in promoter-controlled new-age companies like Nykaa, Nazara, and Mamaearth. These firms, which transitioned from promoter-operated to professional manager-operated structures before their public market debuts, face regulatory restrictions that limit ESOP grants to promoters. Consequently, their executive pay is considerably lower. For instance, Nykaa founder Falguni Nayar received Rs 8.7 crore, while Mamaearth Co-Founders Varun and Ghazal Alagh earned Rs 3.5 crore and Rs 1.8 crore, respectively.
Potential Impact on the Industry
The substantial compensation packages in new-age tech companies could have several implications for the industry:
Talent Acquisition and Retention
The lavish pay, especially through ESOPs, makes new-age tech firms attractive to top talent, potentially drawing skilled professionals away from traditional firms. This could intensify the competition for talent, compelling traditional firms to reassess their compensation strategies.
Corporate Culture and Employee Morale
The disparity in pay between executives and regular employees in new-age tech firms might lead to disparities in workplace culture and employee morale. Companies must navigate these challenges to maintain a cohesive and motivated workforce.
Financial Sustainability
Even while ESOPs are an effective instrument for executive incentives, an excessive dependence on them—particularly in unproductive businesses—may cause questions about the long-term viability of the company’s finances and shareholder value. A company’s ability to control the dilution of equity and the long-term effects on stock prices is crucial.
Regulatory Scrutiny
The significant use of ESOPs and high executive pay in unprofitable companies may attract regulatory scrutiny. Ensuring transparency and aligning executive compensation with long-term company performance could become increasingly important.
Conclusion
The rapidly changing remuneration scene in India’s business sector highlights the significant distinctions between established IT organizations and cutting-edge software startups. It will be critical to strike a balance between competitive pay, financial sustainability, and regulatory compliance as the business grows and changes. Navigating these obstacles is necessary for both modern and traditional businesses to promote innovation, growth, and a driven staff.
