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Determination of Executive Compensation in an Emerging Economy. Evidence from India

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  • Arijit Ghosh
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    Abstract

    Most studies of the determination of executive compensation are based on the experience of developed countries, and mainly focus on Chief Executive Officer (CEO) compensation. Determination of board compensation is relatively ignored in the literature. This paper examines the effect of corporate governance, firm performance, and corporate diversification on the board, as well as CEO compensation and its components, in the context of an emerging economy-India-where a managerial market has yet to develop. Data for 462 firms for 1997-2002 in the Indian manufacturing sector have been used. This paper finds that board compensation largely depends on current- and past-year performance and diversification of the firm, whereas CEO compensation depends on current-year firm performance only. Among the personal attributes of the CEO, only in-firm experience has significant influence on CEO compensation. This finding contradicts the existing studies, where current- and past-year firm performance, as well as age, experience, and education of the CEO are important factors in determining CEO compensation.

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    Bibliographic Info

    Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

    Volume (Year): 42 (2006)
    Issue (Month): 3 (May)
    Pages: 66-90

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    Handle: RePEc:mes:emfitr:v:42:y:2006:i:3:p:66-90

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    Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

    Related research

    Keywords: board compensation; CEO compensation; firm diversification; firm performance;

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    Cited by:
    1. Ghosh, Saibal, 2010. "Firm performance and CEO pay: Evidence from Indian manufacturing," MPRA Paper 25451, University Library of Munich, Germany.
    2. Sunny Sun & Xia Zhao & Haibin Yang, 2010. "Executive compensation in Asia: A critical review and outlook," Asia Pacific Journal of Management, Springer, vol. 27(4), pages 775-802, December.
    3. Sonja Fagernäs, 2006. "How do family ties, boards and regulation affect pay at the top? Evidence for Indian CEOs," ESRC Centre for Business Research - Working Papers wp335, ESRC Centre for Business Research.

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