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CEO compensation and corporate governance: Evidence from India
, Sahil Singh Jasrotia
Published in Project MUSE
2021
Volume: 55
   
Issue: 1
Abstract
India's corporate legislative environment has witnessed defining moment with the advent of Companies Act, 2013, which has introduced many seminal features relating to good corporate governance practices of which one of them is the provisions relating to executive compensation. Studies on executive compensation have observed that there is a clear disconnect between executive compensation and financial performance of the company hampering long term value creation for both company as well as for investor community. The purpose of this paper is to critically evaluate the impact of the provisions relating to executive compensation (CEO compensation) as given under Companies Act, 2013 with the financial performance of NIFTY 50 companies during the last decade. Our study comprises of data collected from NIFTY 50 Index companies for the financial year 2007-08 to 2016-17 using CMIE prowess database and from Annual reports. The paper is quantitative in nature, where we have used multiple regression for the analysis using SPSS 23.Our analysis on CEO compensation in the Indian context observes that the traditional argument of agency theorists towards controlling agency costs is by linking CEO pay with the organizational performance viz., sales, EBIT and ROI do not hold good. We found out that CEO pay has no significant relationship with the Sales, EBIT and ROI except ROA. The Study highlights that pay for performance or linking CEO pay with performance indicators cannot be established and does not hold any ground in the Indian context. Our study is a clear demarcation from the traditional knowledge generated from the literature concerning pay-performance metrics and suggests for a change in the disclosure practice by companies relating to CEO pay, which is for the inclusion of CEO compensation during the previous year as well while they are disclosing the current year CEO compensation at the same instance. It will be a case for best practice in executive compensation. The study established that the Companies Act, 2013 is an effective legislative check mechanism relating to CEO compensation in ensuring good corporate governance environment. An implication of this paper is that it addresses the issue of legislative mechanism and response in the overall corporate governance climate in dealing with executive compensation. [ABSTRACT FROM AUTHOR]
About the journal
JournalThe Journal of Developing Areas
PublisherProject MUSE
ISSN0022-037X
Open AccessNo