Impact of Ownership Type and Board Characteristics on the Pay–Performance Relationship: Evidence from India

The present research has been undertaken to study the role of ownership type and board mechanisms in moderating the executive pay-corporate performance linkage in the Indian context. A sample of 209 companies listed on the S&P BSE 500 Index has been studied over the period 2008–2009 to 2012–2013. Rigorous statistical analysis of the panel data highlights that some of the governance mechanisms are, in practice, instrumental in improving the relationship between pay and performance. Whereas efforts must, indeed, be channelled towards the better functioning of certain other internal control mechanisms. Specifically, of noteworthy consequence is the difference in the way the shareholders and the board of directors ameliorate the pay–performance relationship with respect to accounting vis-à -vis market-based corporate performance. Further, the weak monitoring role discharged by the institutional investors warrant immediate policy concern. The study brings forth important implications for practitioners and policy makers in designing corporate performance-based pay keeping in view the predominant influence exerted by the institutional environment of the emerging economy of India.