How Responsive Executive Compensation is to Corporate Performance? An Indian Perspective

Based on the principal-agent framework, the present research puts to empirical scrutiny the responsiveness of executive pay to corporate performance in a sample of 209 companies listed on the S&P BSE 500 Index. Both sensitivity and elasticity models have been formulated to measure the strength and magnitude of the pay-performance relationship over the period 2008-09 to 2012-13. Using robust statistical tools, the results of the present study reveal a positive, yet weak strength of such relationship. The stronger responsiveness of pay to accounting-based performance vis-à-vis to market-based performance suggests remedial compensation policies further aligning executive pay to increase in shareholders’ wealth in the sample Indian firms. Future research can explore additional theoretical underpinnings of the pay paradigm