Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Structure of Executive Compensation in India


Affiliations
1 Assistant Professor, Mehr Chand Mahajan DAV College for Women, Chandigarh, India
     

   Subscribe/Renew Journal


The soaring level of executive compensation has been an issue of much public as well as policy concern over decades. For an emerging economy like India, which is already characterized by income inequality and rich-poor divide, this matter assumes utmost significance. From a deeper inspection, the form rather than the level constitutes the real problem. Thus, the present study has been undertaken with an objective to study the structure of top managerial pay in the Indian context. Compensation components of top executives of 209 sample companies listed on the S&P BSE 500 Index have been studied over FY 2008-09 to 2012-13 across six industry sectors. Results of ANOVA along with post-hoc tests confirmed inter-industry differences in the pay practices of the sample companies. Moreover, extreme domination of the fixed pay component could be observed over the years. The use of more and multiple long-term incentivizing mechanisms has, therefore, been recommended. Future research can enrich the present analysis by exploring the relationship of various pay components with corporate performance measures.

Keywords

Executive Compensation Structure, Industry-Wise, Year-Wise, ANOVA, India.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Abraham, R., Harris, J., & Auerbach, J. (2014). CEO pay-performance sensitivity: A multi-equation model.

  • Technology and Investment, 5(3), 125-136.

  • Adithipyangkul, P., Alon, I., & Zhang, T. (2011). Executive perks: Compensation and corporate performance in China. Asia Pacific Journal of Management, 28(2), 401-425.

  • Agarwal, N. K. (1981). Determinants of executive compensation. Industrial Relations, 20(1), 36-45.

  • Agrawal, A., Makhija, A. K., & Mandelker, G. N. (1991). Executive compensation and corporate performance in electric and gas utilities. Financial Management, 20(4), 113-124.

  • Aon Hewitt. (2010). Spotlight: Variable pay. Total Rewards Quarterly, 1(1), 14-18. Retrieved from http://www.aon.com/india/attachments/AON-Hewitt-TRQ_MAG-1.pdf

  • Aon Hewitt. (2011). Decoding executive compensation. Total Rewards Quarterly, 1(2), 8-13. Retrieved from http://www.aon.com/india/ attachments/AON%20Hewitt %20TRQ_MAG%202_15feb.pdf

  • Balasubramanian, N., Barua, S. K., & Karthik, D. (2013). Corporate governance issues in executive compensation: The Indian experience (2008-2012). Indian Institute of Management (Bangalore) Working Paper No. 426. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2337861

  • Balasubramanian, B. N., Barua, S. K., & Karthik, D. (2015). Influence of board diversity and characteristics on CEO compensation: Contingent effects of concentrated ownership. Indian Institute of Management (Ahmedabad) Working Paper No. 2015-03-37. Retrieved from http://www.iimahd.ernet.in/faculty-and-research/research-and-publication/ working-papers.html&rnp_id=13361

  • Bhattacherjee, D., Jairam, S., & Shanker, G. R. (1998). Top management remuneration and firm performance: An exploratory analysis. Economic and Political Weekly, 33(9), M10-M15.

  • Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. The Journal of Political Economy, 81(3), 637-654.

  • Bootsma, A. A. (2009). Pay-for-performance: An empirical investigation of the relationship between executive compensation and firm performance in the Netherlands (Master’s thesis). Erasmus University Rotterdam. Retrieved from http://thesis.eur.nl/pub/6150/

  • Bootsma, A. A. (2010). Pay-for-performance? An empirical investigation of the relationship between executive compensation and firm performance in the Netherlands. Retrieved from http://repub.eur.nl/res/pub/20029/176-194_bootsma.pdf

  • Bouras, M., & Gallali, M. I. (2016). The board of directors and executive compensation in the context of crisis: A comparative study between the United States and France. International Journal of Business, 21(1), 68-86.

  • Brown, M. B., & Forsythe, A. B. (1974). Robust tests for the equality of variances. Journal of the American Statistical Association, 69(346), 364-367.

  • Bryan, S., Nash, R., & Patel, A. (2011). Law and executive compensation: A cross‐country study. Journal of Applied Corporate Finance, 23(1), 84-91.

  • Carpenter, J. N. (1998). The exercise and valuation of executive stock options. Journal of Financial Economics, 48(2), 127-158.

  • Carroll, T. M., & Ciscel, D. H. (1982). The effects of regulation on executive compensation. The Review of Economics and Statistics, 64(3), 505-509.

  • Chhaochharia, V., & Grinstein, Y. (2009). CEO compensation and board structure. The Journal of Finance, 64(1), 231-261.

  • Conyon, M. J. (2006). Executive compensation and incentives. Academy of Management Perspectives, 20(1), 25-44.

  • Conyon, M. J. (2014). Executive compensation and board governance in US firms. The Economic Journal, 124(574), F60-F89.

  • Conyon, M. J., & He, L. (2004). Compensation committees and CEO compensation incentives in US entrepreneurial firms. Journal of Management Accounting Research, 16(1), 35-56.

  • Conyon, M. J., & He, L. (2011). Executive compensation and corporate governance in China. Journal of Corporate Finance, 17(4), 1158-1175.

  • Conyon, M. J., & Murphy, K. J. (2000). The prince and the pauper? CEO pay in the United States and United Kingdom. The Economic Journal, 110(467), 640-671.

  • Conyon, M. J., & Peck, S. I. (1998). Board control, remuneration committees, and top management compensation. Academy of Management Journal, 41(2), 146-157.

  • Duffhues, P., & Kabir, R. (2008). Is the pay-performance relationship always positive? Evidence from the Netherlands. Journal of Multinational Financial Management, 18(1), 45-60.

  • Field, A. (2009). Discovering statistics using SPSS. India: Sage Publications.

  • Finkelstein, S., & Hambrick, D. C. (1989). Chief executive compensation: A study of the intersection of markets and political processes. Strategic Management Journal, 10(2), 121-134.

  • Frydman, C., & Jenter, D. (2010). CEO compensation. National Bureau of Economic Research Working Paper No. 16585. Retrieved from http://www.nber.org/papers/w16585.pdf

  • Frydman, C., & Saks, R. E. (2010). Executive compensation: A new view from a long-term perspective, 1936–2005. Review of Financial Studies, 23(5), 2099-2138.

  • Ghose, A. (2011). Changing world of long term incentives. Retrieved from http://www.aon.com/india/rewards-conference/ Aon-Hewitts-8th-Annual-Rewards-Conference/summaries/1-a-Executive-Compensation-and-Long-Term-Incentives.pdf

  • Ghosh, A. (2006). Determination of executive compensation in an emerging economy: Evidence from India. Emerging Markets Finance and Trade, 42(3), 66-90.

  • Ghosh, S. (2010). Firm performance and CEO pay: Evidence from Indian manufacturing. The Journal of Entrepreneurship, 19(2), 137-147.

  • Gill, S. (2014). Rewards for failure: An explanation for anomalous executive remuneration. Journal of Indian Business Research, 6(2), 90-127.

  • Goergen, M., & Renneboog, L. (2011). Managerial compensation. Journal of Corporate Finance, 17(4), 1068-1077.

  • Gomez-Mejia, L., & Wiseman, R. M. (1997). Reframing executive compensation: An assessment and outlook. Journal of Management, 23(3), 291-374.

  • Gupta, A. (2017, April 23). The future of executive pay in India. Businessworld. Retrieved from http://www.businesstoday.in/magazine/columns/the-future-of-executive-pay-in-india/story/249164.html

  • Haid, A., & Yurtoglu, B. B. (2006). Ownership structure and executive compensation in Germany. Retrieved from http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=948926

  • Hall, B. J., & Liebman, J. B. (1998). Are CEOs really paid like bureaucrats? Quarterly Journal of Economics, 113(3), 653-691.

  • Hallman, G., Hartzell, J. C., & Parsons, C. A. (2011). Incentive compensation and the likelihood of termination: Theory and evidence from real estate organizations. Real Estate Economics, 39(3), 507-546.

  • Hartzell, J. C., & Starks, L. T. (2003). Institutional investors and executive compensation. Journal of Finance, 58(6), 2351-2374.

  • Hengartner, L. (2006). Explaining executive pay: The roles of managerial power and complexity (Doctoral dissertation). University of St. Gallen. Retrieved from http://verdi.unisg.ch/www/edis.nsf/wwwDisplayIdentifier/3217 /$FILE/dis3217.pdf

  • Izan, H. Y., Sidhu, B., & Taylor, S. (1998). Does CEO pay reflect performance? Some Australian evidence. Corporate Governance: An International Review, 6(1), 39-47.

  • Jaiswal, S. K., & Bhattacharyya, A. K. (2016a). The role of operating efficiency and asset productivity in relative performance evaluation and CEO compensation in Indian firms. Decision, 43(3), 201-221.

  • Jaiswall, S. S. K., & Bhattacharyya, A. K. (2016b). Corporate governance and CEO compensation in Indian firms. Journal of Contemporary Accounting & Economics, 12(2), 159-175.

  • Jensen, M. C., & Murphy, K. J. (1990). CEO incentives: It’s not how much you pay, but how. Harvard Business Review, 3, 138-153.

  • Jensen, M. C., & Smith, C. W. (2000). Stockholder, manager, and creditor interests: Applications of agency theory. Theory of the Firm, 1(1). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=173461

  • Jiang, H., Habib, A., & Smallman, C. (2008). Ownership concentration and CEO compensation pay-for performance sensitivity in New Zealand. Retrieved from http://www.pbfeam2008.bus.qut.edu.au/papers/documents/Haiyan

  • Jiang_Final.pdf Kato, T., & Kubo, K. (2006). CEO compensation and firm performance in Japan: Evidence from new panel data on individual CEO pay. Journal of the Japanese and International Economies, 20(1), 1-19.

  • Kato, T., & Long, C. (2006). Executive compensation, firm performance, and corporate governance in China: Evidence from firms listed in the Shanghai and Shenzhen Stock Exchanges. Economic Development and Cultural Change, 54(4), 945-983.

  • Kim, J. (2004). Executive compensation contracts: Change in the pay-performance sensitivity within firms. The Journal of American Academy of Business, 4(1/2), 449-454.

  • Kline, W., Kotabe, M., Hamilton, R. D., & Balsam, S. (2017). Executive compensation: An examination of the influence of TMT compensation on risk-adjusted performance. Journal of Strategy and Management, 10(2), 187-205.

  • Kubo, K. (2005). Executive compensation policy and company performance in Japan. Corporate Governance: An International Review, 13(3), 429-436.

  • Lantz, B. (2013). The impact of sample non‐normality on ANOVA and alternative methods. British Journal of Mathematical and Statistical Psychology, 66(2), 224-244.

  • Main, B. G., Bruce, A., & Buck, T. (1996). Total board remuneration and company performance. The Economic Journal, 106(439), 1627-1644.

  • Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38(2), 163-184.

  • Mengistae, T., & Xu, L. C. (2004). Agency theory and executive compensation: The case of Chinese state‐owned enterprises. Journal of Labor Economics, 22(3), 615-637.

  • Merton, R. C. (1973). Theory of rational option pricing. The Bell Journal of Economics and Management Science, 4(1), 141-183.

  • Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3(Part B), 2485-2563.

  • Narayanan, C., & Dubey, J. (2015, August 16). Are Indian CEOs overpaid? Business Today, 24(16), 38-53.

  • Palomino, F., & Peyrache, E. (2013). Internal versus external CEO choice and the structure of compensation contracts. Journal of Financial and Quantitative Analysis, 48(4), 1301-1331.

  • Parthasarathy, A., Menon, K., & Bhattacherjee, D. (2006). Executive compensation, firm performance and corporate governance: An empirical analysis. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=881730

  • Pennathur, A. K., & Shelor, R. M. (2002). The determinants of REIT CEO compensation. The Journal of Real Estate Finance and Economics, 25(1), 99-113.

  • Raithatha, M., & Komera, S. (2016). Executive compensation and firm performance: Evidence from Indian firms. IIMB Management Review, 28(3), 160-169.

  • Rajan, R. G., & Wulf, J. (2006). Are perks purely managerial excess? Journal of Financial Economics, 79(1), 1-33.

  • Ramaswamy, K., Veliyath, R., & Gomes, L. (2000). A study of the determinants of CEO compensation in India. Management International Review, 40(2), 167-191.

  • Sakawa, H., Moriyama, K., & Watanabel, N. (2012). Relation between top executive compensation structure and corporate governance: Evidence from Japanese public disclosed data. Corporate Governance: An International Review, 20(6), 593-608.

  • Shim, E. D., Lee, J., & Joo, I. K. (2009). CEO compensation and US high-tech and low-tech firms’ corporate performance. Contemporary Management Research, 5(1), 93-106.

  • Smith, C. W., & Watts, R. L. (1982). Incentive and tax effects of executive compensation plans. Australian Journal of Management, 7(2), 139-157.

  • Thomas, R. S. (2008). International executive pay: Current practices and future trends. Vanderbilt University Law School Working Paper No. 08-26. Retrieved from http://ssrn.com/abstract=1265122

  • Tomar, A., & Korla, S. (2011). Global recession and determinants of CEO compensation: An empirical investigation of listed Indian firms. Indore Management Journal, 3(2), 11-26.

  • Tomarken, A. J., & Serlin, R. C. (1986). Comparison of ANOVA alternatives under variance heterogeneity and specific noncentrality structures. Psychological Bulletin, 99(1), 90-99.

  • Vafeas, N. (2003). Further evidence on compensation committee composition as a determinant of CEO compensation. Financial Management, 32(2), 53-70.

  • Yermack, D. (1995). Do corporations award CEO stock options effectively? Journal of Financial Economics, 39(2), 237-269.

  • Yermack, D. (2006). Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns. Journal of Financial Economics, 80(1), 211-242.

  • Zhou, X. (2000). CEO pay, firm size, and corporate performance: Evidence from Canada. Canadian Journal of Economics, 33(1), 213-251.


Abstract Views: 264

PDF Views: 1




  • Structure of Executive Compensation in India

Abstract Views: 264  |  PDF Views: 1

Authors

Manika Kohli
Assistant Professor, Mehr Chand Mahajan DAV College for Women, Chandigarh, India

Abstract


The soaring level of executive compensation has been an issue of much public as well as policy concern over decades. For an emerging economy like India, which is already characterized by income inequality and rich-poor divide, this matter assumes utmost significance. From a deeper inspection, the form rather than the level constitutes the real problem. Thus, the present study has been undertaken with an objective to study the structure of top managerial pay in the Indian context. Compensation components of top executives of 209 sample companies listed on the S&P BSE 500 Index have been studied over FY 2008-09 to 2012-13 across six industry sectors. Results of ANOVA along with post-hoc tests confirmed inter-industry differences in the pay practices of the sample companies. Moreover, extreme domination of the fixed pay component could be observed over the years. The use of more and multiple long-term incentivizing mechanisms has, therefore, been recommended. Future research can enrich the present analysis by exploring the relationship of various pay components with corporate performance measures.

Keywords


Executive Compensation Structure, Industry-Wise, Year-Wise, ANOVA, India.

References