Even as some of the top fast-moving consumer goods companies have termed the current economic slowdown “as not that stressful”, the chief executive officers felt the pinch in their target-driven variable pay in 2018-19.
Performance-linked variable pay for Vivek Gambhir, MD & CEO of Godrej Consumer Products, felt it the most during the year — from Rs 8.85 crore in FY18 to Rs 1.85 crore in FY19. Besides, his total salary plummeted to Rs 13.1 crore in FY19 from Rs 19.69 crore in FY18, according to the firm’s annual report.
Heads of Hindustan Unilever Ltd, India’s largest consumer goods maker, and Marico Ltd also took home less salary this year as compared to the last. While HUL’s Sanjiv Mehta’s profits in lieu of salary stood at Rs 2.73 crore in FY19 against Rs 5.58 crore a year earlier, Saugata Gupta, managing director and CEO at the maker of Parachute coconut hair oil, saw his total salary fall 55 per cent to Rs 9.21 crore from Rs 21 crore a year ago.
Gupta’s remuneration included the perquisite value of stock appreciation rights vested on him in 2018-19 worth Rs 2.4 crore compared with Rs 1.4 crore in FY18. Excluding the perquisites, Gupta’s pay stood at Rs 6.81 crore in FY19. Mehta, despite the decline in his salary, earned 194 times the median remuneration of employees in the company for FY19 while the ratio of Gupta’s compensation to the median remuneration of employees was 97.51. Overall salary of Mehta, who was the highest-paid FMCG executive this year, also saw his total salary decline to Rs 18.88 crore from Rs 19.4 crore.
Clearly, these CEOs were rewarded for the dismal performance of their companies primarily due to the dent in rural demand, which contributes majorly to their sales. According to Rituparna Chakraborty, co-founder at staffing firm Teamlease, FMCG companies have warned of a slowdown which crept in towards the end of 2018-19. “The moderation in the profit-linked remuneration is primarily because companies are choosing to be prudent at this point in time,” she said.
It’s no surprise that consumption, one of the key growth drivers of the economy, is on the slow lane. Though the impact of the slowdown was more pronounced in high-ticket segments like automobiles, real estate and consumer durables, thanks to the credit squeeze triggered by the NBFC crisis, it has now spread to other sectors. The creeping demand slowdown has gripped the FMCG sector as consumers continue to cut back on purchases.
Even categories with a high contribution of small packs such as shampoos, soaps, chips, biscuits, toothpaste, etc, (Rs 5, Rs 10) have seen decline in sales compared to last year. In biscuits for example, small packs contribute to more than two-thirds of all sales, but saw a decline of 5 per cent for the January-June 2019 period, compared to the past year, finds market research firm Nielsen
The variable pay, however, remained unchanged for the chief executive of Britannia Industries Ltd at Rs 3.86 crore, while for his peers the pay hikes got leaner. ITC Ltd, meanwhile, stood out from the rest. Sanjiv Puri, who was elevated as chairman & MD of ITC in May this year, saw his performance bonus and commission jump about 88 per cent at Rs 4.32 crore in FY19.
Decline in rural demand to blame
The dismal performance of the FMCG companies were primarily due to the dent in rural demand, which contributes majorly to their sales. FMCG companies have warned of a slowdown which crept in towards the end of 2018-19, said Rituparna Chakraborty, co-founder, Teamlease.