Executive Compensation in India

Abstract

The issue of executive compensation in corporate India has gained increasingly in significance since the advent of economic liberalization in 1993-94, the subsequent rise of India as a leading center for international investment, and the rapidly increasing domestic equity participation from retail investors in Indian capital markets. Salaries for senior management have grown sharply since 1994, and are sizable in the Indian context, particularly when compared against non-managerial employee salaries. The sharp rise in salary levels, and the wide regulatory latitude afforded to boards to set executive pay after 1993-94 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, both from an economic as well as a regulatory policy perspective.

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