Concluding remarks
In this study, we empirically examine the pay–performance relationship among Indian firms. The study reports signifi- cant persistence in executive compensation among the sample firms. The persistence in the executive compensation exists even among the sub-samples of firms, classified based on size and ownership. Findings also suggest the existence of significant pay–performance relationship among the sample firms. However, when performance is measured using market based measures, we do not find pay–performance relationship among the sample firms. It may be argued that sample firms determine their executive compensation based on the accounting based measures of firm performance rather than market based measures. Further, we report the absence of pay–performance relationship among the business group affiliated firms, whereas their stand-alone counterparts report significant pay– performance relationship. Such an observation casts doubts over the performance based executive compensation practices of Indian business group affiliated firms. We also find that the pay–performance relationship is absent among the small sample firms, but the relationship is significant among the larger sample firms. We attribute such a contrast in our observation to the underdeveloped nature of institutional mechanisms and weak investor activism in India.
