Chakrabarti, Rajesh; Subramanian, Krishnamurthy; Yadav, Pradeep K.; Yadav, Yesha --- "Executive Compensation in India" [2012] ELECD 619; in Thomas, S. Randall; Hill, G. Jennifer (eds), "Research Handbook on Executive Pay" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Executive Pay

Editor(s): Thomas, S. Randall; Hill, G. Jennifer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849803960

Section: Chapter 21

Section Title: Executive Compensation in India

Author(s): Chakrabarti, Rajesh; Subramanian, Krishnamurthy; Yadav, Pradeep K.; Yadav, Yesha

Number of pages: 31

Extract:

21 Executive compensation in India
Rajesh Chakrabarti, Krishnamurthy Subramanian,
Pradeep K. Yadav and Yesha Yadav* 1




1 INTRODUCTION

The issue of executive compensation in corporate India has gained increasingly in sig-
nificance since the advent of economic liberalization in 1993­94, the subsequent rise of
India as a leading center for international investment, and the rapidly increasing domes-
tic equity participation by retail investors in Indian capital markets. Salaries for senior
management have grown sharply since 1994, and are sizable in the Indian context, par-
ticularly when compared with non-managerial employee salaries. The sharp rise in
salary levels, and the wide regulatory latitude afforded to boards to set executive pay
after the 1993­94 reforms, have prompted concerns long analyzed in developed markets
in relation to the play of incentives governing executive employment contracts, and in
particular, the better alignment of pay with performance to reduce "agency costs," and
the use and abuse of managerial power to extract rents and thereby disgorge shareholder
value. As India seeks to progress the creation of corporate governance systems in
avowed alignment with international best practice, it presents an interesting case-study
in the context of executive compensation, from an economic as well as a regulatory
policy perspective.
From an economic perspective, the agency costs that are of greatest concern in an
Indian context are "horizontal" agency costs between controlling (potentially minority)
shareholders and other (passively investing) shareholders. These are fundamentally dif-
ferent from the "vertical" agency costs between managers and dispersed shareholders
...