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Nitish Mukherjee

The author is a Board Member, Advisor, Coach & Mentor. The content of this article is his personal opinion

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BW Businessworld

Dark Roast Double Shot: The Potential Effects of C-Suite Compensation

Compensation that is not linked to business reality finds its nemesis in the marketplace.

Photo Credit : Shutterstock

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The pre-monsoon clouds were gathering outside, as I nestled in to my favourite sofa on the 30th floor of a plush luxury hotel and looked through the large picture window framing the cityscape of Mumbai for miles into eternity. It was early evening and the struggling sun had just broken through the clouds lighting up a few skyscrapers, in its opalescent celestial spotlight. I was struck by how much of the details of beauty or ugliness you notice when you focus even a momentary, fleeting, light on something. Details that you missed when you saw the same canvas many times before drenched in a million watts of sparkling sunlight.

My boss had asked me to meet up with someone to explore some possibilities. The person I was looking forward to meet had an impressive track record in both advertising and media, heading large teams and businesses and was now an independent consultant. A lady of great intelligence and grace. And a penchant for candour, as I was soon to discover.

Just as I finished gathering my thoughts, the lift door opened and my guest walked out, as the clock overhead ticked into place as if to announce the precision of her arrival. Pleasantries aside, as I put down my cup after the first sip of an excellent Nicamalai brewed to perfection, I looked up and asked “Why do you think advertising agencies struggle to scale up and grow even in a growing economy?” Pat came the reply “It is because of the disproportionate salaries of the CEOs.”

I am not sure whether it was the effect of strong coffee or the unexpected answer, but something had sent the grey matter in my head into a frenzy, scrambling to find a response beyond fight or flee. I was relieved that the next voice I heard was hers and not mine. “By disproportionate I mean in comparison to the size of the business or revenues. In any other industry, anyone handling that extent of sales or profit would never be paid so much. Nor would they get the amount of media coverage that people in advertising agencies get. This is not good for the industry. It has its own repercussions.” There were other things to discuss that day and soon we moved on. 

Some thoughts once planted have the power to take hold of you, compel you to search, to take a closer look at things and to keep aside your existing notions and make an objective evaluation. And at times the realisation of the relationship between cause and effect can be surprising.

Advertising agencies have a very close relationship with media. They also create all the content that have a direct impact on revenues that support the media business. It is a close partnership which has helped influence the heightened media coverage that business and creative heads of agencies get. In itself quite harmless but it does often create perceived value quite removed from business reality. Sometimes even starts a race between egos that is an end in itself and drains enormous time and resources. It also makes individuals bigger than the businesses they espouse.

It is a fact that the salary of most CEO’s and the senior managers of advertising agencies are significantly higher than leaders of similar sized businesses in any other category. Often continuing to be a well-paid job despite the company’s tardy performance. And when posed with that observation the conversation always veers around to the calibre of the person, talent, experience, contribution to industry. Leaving one wondering if the intent of business is different in this case. If increasing economic value and shareholder returns is not the objective or of relevance to leadership compensation.

Compensation that is not linked to business reality finds its nemesis in the marketplace. In the majority of negotiations for agency fees the first casualty in the spreadsheet is the amount of senior management time that the client is willing to sign up. Often the agency feels that the client is trying to unfairly bring down agency compensation. The truth is that the market is trying to say that they do not see the price-value equation as fair. The same client does not make this request when approaching a law firm or an audit firm. In fact, they want to ensure that they have the resources to buy the time of the senior professional. Inability to sell your most highly paid resources in full, leave alone at a premium, can often be debilitating for company profits, culture and morale with far reaching implications. 

Exceptions prove the rule and even in this case there are exceptional professionals for whom clients are willing to pay the price. They are often specialists. Creative or planning. But these are rare and not as many as what the media or award lists would have us believe. 

It is often argued that the advertising industry is run on talent which comes at a price. If that were true then how is it that entry level talent in advertising is paid much lower than other comparable industries and retention of high potential talent within the industry remains a challenge? Or is it possible that there is a stronger correlation here to the distribution of compensation within the structure?

It is not about the amount of money. It is also about how it is structured. A higher proportion of the compensation linked to performance and maximising share value will be a good driver. Penalising poor performance too is a must. Like any other human being the inhabitants of the C-suite will do whatever it takes to ensure their well-being. 

Getting compensation tied to the scale of business and growth is a basic prerequisite to getting any business going. And this is true of many companies especially those who rely heavily on talent and manpower. The world is tightening its belt for the rough weather ahead in the months to come and only the fittest will thrive in the new order and opportunities that will emerge. The change in some places has to start at the top.

You can DM me on LinkedIn or write in to [email protected] 

(Nitish Mukherjee is a Board Member, Advisor, Coach & Mentor. The content of this article is his personal opinion.)