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

Authors: Palanisamy Saravanan; Maram Srikanth; Suhas M. Avabruth

Addresses: Department of Finance and Accounting, Indian Institute of Management Shillong, Mayurbhanj Complex Nongthymmai, Shillong 793014, India ' Department of Finance and Accounting, Indian Institute of Management Shillong, Mayurbhanj Complex Nongthymmai, Shillong 793014, India ' Department of Finance and Accounting, Indian Institute of Management Shillong, Mayurbhanj Complex Nongthymmai, Shillong 793014, India

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.

Keywords: corporate governance; executive compensation; firm performance; India; non-executive compensation; managerial power theory; tournament theory; agency theory; board size; CEO dual role; non-executive directors.

DOI: 10.1504/IJCG.2016.082351

International Journal of Corporate Governance, 2016 Vol.7 No.4, pp.377 - 403

Received: 19 Sep 2015
Accepted: 17 Nov 2016
Published online: 20 Feb 2017 *

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