cxo: Retention toolkit: India Inc readies golden handcuffs to arrest CXO attrition

Mumbai: Record-high attrition at the leadership level and a volatile external environment is prompting Indian companies to take steps to retain their top executives, including CEOs and CXOs, by offering them robust guardrails, said top board members and executive search consultants.

Many companies are tightening top executive contracts to bind them in longer associations where an abrupt exit of a C-suite executive can potentially cause severe business disruption and financial loss.

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A toolkit to bind the CXOs may include measures like longer tenure employment contracts (five years versus three years) and longer notice periods (six to nine months) as compared with three months earlier, according to the CXO search consultants. Many companies are also boosting the variable component of a CEO or CXO pay package with backloading of long-term incentive (LTI) payments.

“Increased variability in pay is the trend. The variable pay includes short-term incentives (annual bonus) and long-term incentives (cash/equity),” said Arvind Usretay, senior director, commercial leader – India & South Asia, Mercer Consulting (India).

The variable pay could be 50% or more of total pay in some cases. “More organisations are embracing performance shares as part of a portfolio approach for LTI. They are usually combined with RSUs (restricted stock units) or ESOPs (employee stock ownership plan),” Usretay added.

This comes when many executive search consultants are facing an increase in time taken to close a CXO or CEO vacancy. “It takes a minimum of 6-8 months from the time a search starts to the final appointment (including notice period to previous company). Pre-pandemic, it was quicker with time taken to fill role being anywhere between 4 and 6 months,” said R Suresh, MD, Insist Consulting.

The extended search for new CXO or CEO is because of supply shortage as companies – fuelled by PE investments – as well as large and established firms are hunting for CXOs from a limited talent pool. Many companies are backloading ESOP vesting (with 40-50% in the final year of the contract), said search executives.

“Companies that are paying for the lost pay at a previous company to hire a CEO/CXO have clawback options where a sudden exit before the completion of a contract term may require full payment of the money,” Suresh said.

“Companies are increasingly trying to create a high exit barrier,” said K Sudarshan, MD India and regional chair Asia, EMA Partners. He explained that this may include a mix of deferred or staggered incentive payments, with a huge takeaway at the end of the third year.

According to data from NSE-listed companies compiled by Primeinfobase, CEO exits surged 18% from CY2021 to 166 in CY2022. In 2023, till October-end, 157 MD/CEOs have quit or are on their way out.

“This is a time of unprecedented growth and disruption. CXOs have multiple options of things to do and hence the frequent churn at the senior level is top of the mind for board members,” said Shailesh Haribhakti, chairman of audit and accounting firm Haribhakti & Co. “This also makes succession planning a continuous topic of discussion for boards,” said Haribhakti, who is also an independent director at several Indian companies.

Board members and top executives say there is an increased focus on sweetening the roles for CXOs in family-owned companies by expanding the scope of their decision metrics by giving them more freedom in things like financial decision making.

“There is an increasing focus among promoter-led companies to give more freedom to the CEOs and make them feel that they are the co-owners,” added Haribhakti.

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