<div>Organisations are not homogenous in terms of their existence. A range of social forces, including increasing social responsibility within business, mutual trust emerging as a form of economic efficiency, and a diversification of lifestyles and ambitions, driven by globalisation, increasing choice, an ageing population, and the decline of old allegiances to religion, politics and class are all affecting the shape of modern organisations. Traditional selection criteria, based on the experience of markets, strategies or technologies will always be relevant to what companies seek from their leaders and will drive pay structures and levels. However, the ability of companies and remuneration committees to understand the particular context of their organisation, their executives, and their environment will increasingly become of preeminent importance.<br /><br />Executive compensation is not just about data analytics, but there are contextual factors involved, such as markets, strategy, culture, and ambitions that are important determinants of executive pay. <br />While analysing top executives' compensation data, we ran a regression between the Hay Level (proxy for job contour in terms of scope, scale, size, complexity, etc.) and Total Cost To Company (total compensation), across 158 companies. We wanted to investigate the one-size-fits-all philosophy: As the Hay Level increases; will there be a commensurate pay increase?<br /><br />We found a co-relation of 0.26, which indicates that besides organisation contour and scope, there are other factors that drive CEO compensation.<br /><br /><img width="557" vspace="7" hspace="7" height="286" align="middle" src="/image/image_gallery?uuid=edd6df21-51bc-4cf0-8941-39c70dca1a2f&groupId=222852&t=1365609826487" alt="" /><br /><br />If different company environments require different leaders, then it may be necessary to tailor pay packages too. We have identified the business contexts in 5 themes, based on the India report and our global research on executive compensation.<br /><br /><br /><img width="459" vspace="8" hspace="8" height="364" align="middle" src="/image/image_gallery?uuid=99adcb8e-cc50-4b49-925b-6493dabfd09b&groupId=222852&t=1365609887257" alt="" /><br /><strong><br />Context 1: The Carers</strong><br />Companies that operate in an environment of 'social capitalism', offer the opportunity to use social and environmental consciousness to create a powerful employee and customer brand. The ideal executives in these enterprises will be values-driven communicators. They will understand that their brand must face both the consumer and employment markets and use ethical principles as a source of competitive advantage in both.<br /><br />In addition, they will offer both customers and employees a sense of belonging by extending their trust and building a distinctly co-operative culture. Their underlying philosophy is that "the company exists to boost the community and the economy". The Tata Group or the Godrej Group would be present-day exemplars. <br /><br />Pay in this environment needs to reflect the ideals of the organization. Simple metrics such as EPS growth add value for owners but long-term value is delivered through a more complex variety of factors than earnings growth alone. Short-term pay in particular needs to contain 'soft measures' that corporate governance gurus may find challenging.<br /><br /><strong>Context 2: The Contractors</strong><br />Companies that operate in an environment of contractors and fluid alliances, where the goal is to make the most of professional expertise and ensure that it skips to their tune. The ideal executives will be corporate fixers. They will have a practical - sometimes cynical - insight into people's motivations, combined with a hard edge, to extract maximum value from contracts and to terminate them when required. Their basic philosophy is "I know a man who can". A good present-day example would be the selection of the CEO of Welspun Corp by private equity firm Apollo Management. The focus was on the value the CEO will bring and monetizing the same while defining CEO compensation. (Source: mydigitalfc.com, August 22, 2012)<br /><br />Pay in this environment needs to be focussed on the much longer-term than is normal; thus private equity style arrangements in a listed environment can work here.<br /><br /><strong>Context 3: The Internationalists</strong><br />Companies that operate in an environment of global commerce, where only true multinationals can play. The ideal executives for these enterprises will be chameleons - comfortable with complexity and masters of responsiveness to cultures, trends, and markets. They will leverage their brands, operational strength, and global networks to keep their organizations ahead of the game. They believe, simply, that there are "the quick and the dead". CEOs of MNCs such as Unilever, HSBC, etc. are examples of CEOs operating in this context. <br /><br />Pay in this environment needs to be truly global, highly focussed and to reward for acquisitions and disposals. Big strategies need big pay ideas. <br /><br /><strong>Context 4: The Fundamentalists</strong><br />Companies that operate in what was once a secure environment of stability populated by large, successful companies that have learnt to innovate while retaining a sense of continuity. The ideal executives for this environment will be corporate conservationists. The will have a strong sense of their organization's history and evolution and recognize the risks of radical change. They will embrace sustainable change and innovation but never at the cost of the company's identity. Their philosophy is to "grow the new in the presence of the old".<br /><br />Marico is a good example. The focus of Marico is innovation in the beauty and wellness space and driving growth, fundamentally by leveraging on the company's legacy. Legacy is not a bad word here.<br /><br />Pay in this environment needs to achieve a balance between the short- and long-term. Short-term earnings are important, as their rate of growth will drive share price, but the importance of growth in new territories or areas of business must also command attention.<br /><br /><strong>Context 5: The Cultivators</strong><br />Companies that operate in an environment of start-ups and transient enterprises. This is an environment dominated by ideas and the choreography of talent. The ideal executives in these enterprises will be corporate storytellers. They will have a golden idea and spin a compelling story to investors, the media, and employees, inspiring them with their energy and willingness to take risks. Their underlying philosophy is "go big or go home". India's first no-frills airline entrepreneur; as well as current CEOs of the online selling portals: Flipkart, Jabong, and Quikr are good examples of cultivators.<br /><br />Pay in this environment needs to be dynamic, it needs to be at risk, and it needs to reward at levels that the current corporate governance environment might frown on.<br /><br />The above five contexts explain our premise that businesses are different, strategies differ, and CEOs and their teams are rarely the same from company to company; therefore, executive compensation cannot have a "one-size-fits-all" approach. As a result, defining the top executives' compensation philosophy and quantum should be a combination of data as well as contexts and the environment. <br /><br />Essentially, context/environment plus data analytics equals business-aligned and robust top executive pay decisions.<br /><br /><em>The author is director and rewards practice leader in Hay Group India</em></div>