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Executive compensation, corporate governance and firm performance: evidence from India

Author

Listed:
  • Palanisamy Saravanan
  • Maram Srikanth
  • Suhas M. Avabruth

Abstract

Compensation received by the company directors attracted widespread attention in the recent literature. The existing research focused mainly on the executive compensation, and largely ignored non-executive compensation. Our study focused on the effect of corporate governance and performance variables on the executive as well as non-executive compensation structures in the Indian context. We obtained supporting evidence for managerial power theory as well as tournament theory in this paper. However, we could not find conclusive evidence for the agency theory with regard to executive compensation. Our research shows that as the board size enlarges, executive compensation rises further. However, we found that the proportion of non-executive directors (NEDs) on the board enhances executive compensation. We observed that if the chief executive officer plays dual role (CEO cum chairman) in a firm, NEDs receive lower remuneration. Our results reveal that the corporate governance variables namely board size, CEO duality and proportion of NEDs on the board have significant impact on the non-executive compensation. We affirm that our findings will be useful for the investors as well as institutions viz., the stock exchanges, academic institutions and the regulators as it integrates the relationship among the components of executive compensation, corporate governance and firm performance.

Suggested Citation

  • Palanisamy Saravanan & Maram Srikanth & Suhas M. Avabruth, 2016. "Executive compensation, corporate governance and firm performance: evidence from India," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 7(4), pages 377-403.
    • Handle: RePEc:ids:ijcgov:v:7:y:2016:i:4:p:377-403
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    Citations

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    Cited by:

    1. Manika Kohli, 2018. "Impact of Ownership Type and Board Characteristics on the Pay–Performance Relationship: Evidence from India," Indian Journal of Corporate Governance, , vol. 11(1), pages 1-34, June.
    2. Clement Olalekan Olaniyi & Ademola Obafemi Young & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2022. "Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3386-3403, December.
    3. Faozi A. Almaqtari & Hamood Mohd. Al-Hattami & Khalid M. E. Al-Nuzaili & Mohammed A. Al-Bukhrani, 2020. "Corporate governance in India: A systematic review and synthesis for future research," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1803579-180, January.
    4. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.

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