Today in tech: Do CEOs matter; hiring slowdown; HCL Tech

NS Ramnath
Published: 20, Jun 2012

I have been with Forbes India since August 2008. I like writing about ideas, events and people at the intersection of business, society and technology. Prior, I was with Economic Times. I am based in Bangalore. Email: ns.ramnath@gmail.com

Do CEOs matter When it comes to numbers, there is nothing more fascinating than what CEOs take home. More so, in the aftermath of financial crisis when the executive compensation occupied a good part of our conversations. Two news items - one about NV Tiger Tyagarajan's compensation in Economic Times, and the other Ratan Tata's (he is not the CEO of TCS, but its Chairman) special compensation in Business Standard - must have found a lot of resonance among the readers. Tyagarajan's compensation was $ 4.8 million dollars  2011, that's well above what CEOs of even bigger rivals earn, the report says. And Ratan Tata is to get a special compensation of Rs 5 crore, as "a farewell gift" as he steps down as chairman. (I have just one point to add to ET's story. It rightly says "Tyagarajan's pay packet is not anomalous because the Genpact CEO is mostly based in the US," but doesn't compare his compensation with another CEO based in USA - Francisco D'Souza. His compensation last year was $11.7 million, according to SEC filing)

The bigger question is whether big bosses matter so much to the firm. The two companies obviously think so. The hike 'reflects the importance of his role as CEO', an SEC filing by Genpact says. The special compensation to Ratan Tata is “in recognition of his long-standing contribution to the sustained growth and success", TCS told Business Standard.

At one level, it seems obvious that CEOs matter. We just have to look at the corporate scandals, such as what happened in Satyam, to realise a CEO can bring down a company. But, outside the world of accounting frauds, it’s pretty difficult to isolate CEO’s own contribution to performance. To overcome this problem, Morten Bennedsen and others did something clever. They looked at tragic events in the lives of CEOs (Death of a CEO or death of a CEO's close family member) to see if it had any impact on profitability, investment and sales growth. It had, according to the paper they published in 2007. An even earlier study by Stanley Lieberson and James O’Connor argued that after discounting for the basic momentum of the industry and inherent strengths of a company, a CEO’s impact on profitability was just about 14%. That seems a little less. But, context matters too. In some companies – especially those which are undergoing a transformation, or those that are in an industry that is changing fast – CEOs play a more important role.

And that is the big question today. Should we categorize IT/BPO companies as mature businesses - where CEOs main job is to keep the lights on; or should we treat them as sectors with a lot of excitement ahead - transformational businesses. An hint might lie in CEO compensations. If the board members are doing their job well, that is.

What will happen to hiring next year?
Lateral hiring in IT companies has virtually come to an halt, a report in Times of India says . While this doesn't tell us anything about the overall hiring in the industry (a slow down in lateral hiring only means lower attrition rates), an earlier report in ET saying that Infosys was extending the onboarding of freshers longer than usual suggests a hiring slowdown in the near future. This happens in this sector all the time. In 2001, during the slow down, companies hired less, and ditto in 2008-09. It gives IT companies a better control over costs, but sometimes it can have a negative impact. The impact of lower hiring in 2001 was felt four to five years later, when the growth returned, and companies faced supply crunch, had to shell out a lot to attract talent. This time though, it might be different. In 2010, CLSA sent out a report saying that the impact of low hiring in 2009 will be felt in 2013, when the industry will face a supply crunch. Given the negative outlook, it looks like it won't.

Vineet Nayar to stay in HCL Tech
Making predictions is a low form of journalism. Still, I felt a bit happy to read this report in Business Line - Vineet Nayar to continue as CEO of HCL Tech - and to know I was not off the mark.

Also read:
A sign of Linux getting mainstream: Dell to sell Ubuntu-installed computers in India - ET
A superb piece on (among other things) how IBM did it in Asia: Organizing for an emerging world - McKinsey Quarterly
If you haven't used Evernote, it's time you try out: Evernote Has 34 Million Users, Thanks to Mobile - Mashable
A quick guide from Freshdesk: How to incorporate a US Corporation from outside the USA? - Freshdesk
A new reason to be worried: You for Sale: Mapping, and Sharing, the Consumer Genome: New York Times

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