It is generally said that profits drive business, and remuneration & incentives drive the managers of business. The Nomination and Remuneration Committee (NRC) in any a listed company formulates the criteria relating to the remuneration for the directors, Key Managerial Personnel (KMP), and other employees.

Particulars of remuneration as per Section 197 (12) of the Companies Act, 2013 read with rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in the Annual Report of the company. These particulars include (a) the ratio of remuneration of each director to the median remuneration of the employees, (b) Percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, and Company Secretary, (c) Percentage increase in the median remuneration of employees, etc. Details of remuneration/salary/wages are also provided in the specified format that has data regarding number of Board of Directors (BoD), Key Managerial Personnel (KMP), Employees other than BoD and KMP and Workers along with Median remuneration/salary/wages of respective category, and bifurcation is given for male and female in each category.

Gender pay gap is found in developed as well as developing economies. For example, a Pew Research Center analysis of median hourly earnings of both full- and part-time workers found that in 2022, women earned an average of 82 per cent of what men earned which was 80 per cent in 2002. In UK, the Gender Pay Gap Service website was started for the companies to publish figures on the median pay gap. This showed a wage difference of 9.4 per cent in 2023, the same level in 2017/18. In this background, it becomes interesting to see this gap in Indian context for pharmaceutical sector.

Table 1: Ratio of the remuneration of Directors to the Median Remuneration of the Employees in Top Listed Pharma Companies

Source: Compiled from Annual Reports of respective Companies (2023-24)

Wide variation is found in the remuneration given to executive directors, e.g., in Divi’s Labs, the highest remuneration given to one executive (Dr. Murali K. Divi, Managing Director) was 1,174 times of median remuneration given to permanent employees in that company. In the same company, a key managerial personnel got about 9 times of median remuneration to permanent employees. This variation was not huge in case of remuneration offered to Independent Directors. Wherever difference was there, it was attributable to different reasons. Huge difference was visible in case of Mankind Pharma for which the highest remuneration given to an executive was 634.89 times of median remuneration given to permanent employees whereas a KMP got about 20.51 times of median remuneration give to permanent employees. Executive role entails wider responsibilities.

There are many situations when the ratio of the remuneration of Directors (executive as well as Independent) to the median remuneration of the employees is not comparable, e.g., an executive director steps down from his/her position. For example, Ms. Samina Hamied stepped down from the position of Executive Vice Chairman in Cipla and continued as a non-executive director later. Similarly, Dr. Peter Mugyenyi resigned as an Independent Director in Cipla in May 2023. Further, the variation (percentage increase in remuneration) for the Non-Executive Directors and Independent Directors can also arise due to payment of sitting fees on account of higher number of meetings held/attended during the year as compared to last year.

Independent Directors may comprise those directors who are residing outside India and are entitled to get overseas travel compensation for travelling for Board Meetings within the overall commission approved by the shareholders so that results into variation, e.g., there were six Independent Directors resident outside India in case of Dr. Reddy’s Laboratories (DRL) in FY2024.  Further, in DRL, at least four independent directors were paid for the part of the year as they joined during the year. Due to resignation of a director during the year, there will be payment for the part of the year only, e.g., Dr. Sivakumaran resigned in Aurobindo Pharma in August 2023. In absence of figures of Aurobindo Pharma, calculation has been worked out for sitting fees paid to Independent Directors and median salary given to male & female employees. It worked out to be in the range of 0.26x to 2.36x.

Difference is also found in median remuneration of male and female employees of pharmaceutical companies. Median remuneration of female employees is higher than male employees in six out of top 10 pharmaceutical companies. Overall, in top ten pharmaceutical companies based on market capitalization, the number of female employees is very less as compared to their male counterparts.

In Sun Pharma, strength of permanent female employees is about 9.71 per cent of total permanent employees in the company. This percentage is higher for Divi’s Labs in which strength of female employees is about 14.91 per cent of total permanent employees in that company. This percentage is 15.04 per cent for Cipla, 8.24 per cent for Torrent Pharma, 8.36 per cent for Zydus Lifesciences, 19.82 per cent for Dr. Reddy’s Labs, 5.41 per cent for Lupin, 2.34 per cent for Mankind Pharma, 10.45 per cent for Aurobindo Pharma, and 2.69 per cent for Alkem Labs.

Table 2: Number of Permanent Employees and their Median Remuneration in top Ten Listed Indian Pharmaceutical Companies

Source: Compiled from Annual Reports of respective Companies (2023-24)

Underlying reasons behind difference in the median pay of female employees and male employees vary. In Aurobindo Pharma, female employees’ median salary is higher due to the female employee headcount and remuneration in international subsidiaries. Alkem Labs reported that the company is focusing on hiring more female candidates, specifically in Sales Team, and provide equal opportunity in various roles. Alkem Labs also launched SHINE – Women Excellence Program to groom its female employees from junior to mid-level to prepare them for future roles. Representation of female employees in different levels of management relative to male employees in different geographies also influences the median values, e.g., Among New Hires in Lupin Limited for India, composition formed 5 female employees and 19 male employees in Senior Management, 66 female employees and 434 male employees in Middle Management, and 288 female employees and 4,041 male employees during 2023-24. In Rest of the World (ROW), new hires included 101 male employees and 124 female employees. Lupin’s new hires in FY24 had 64 male employees and 50 female employees.

Pay Gap in the remuneration of executives vis-à-vis permanent employees in top ten pharmaceutical companies is higher. Difference in the median pay of female employees and male employees exist in top ten pharmaceutical companies but due to inclusivity initiatives, and job roles, females have higher median pay as compared to their counterparts in 6 out of top 10 Indian pharmaceutical companies.

Dr. Anil Kumar Angrish-Associate Professor (Finance and Accounting), Department of Pharmaceutical Management, NIPER S.A,S, Nagar (Mohali), Punjab

Disclaimer: Views are personal and do not represent the views of the Institute.