Non-executive-Independent Directors, Pay-performance Sensitivity Analysis of Bombay Stock Exchange (BSE)-260 Firms

Rakesh Yadav

doi:10.65301/iitm.2020.11.2.629

Articles Volume 11, Issue 2 July-December 2020

DOI 10.65301/iitm.2020.11.2.629

Non-executive-Independent Directors, Pay-performance Sensitivity Analysis of Bombay Stock Exchange (BSE)-260 Firms

Authors

RA

Rakesh Yadav

(Ph.D), Faculty at IBSAR, Mumbai, Maharashtra

162 Views

47 Downloads

Published 2020-07-30

Pages 27-33

Abstract

There are plethoras of studies on CEO’s compensation unlike non-executive independent director compensation;
this study uses data of independent director compensation to examine the relation between independent director
compensation and  rm performance by using perspective from agency and institution theory.
The design of the study is for two years 2005 and 2010, from BSE-500 companies listed in India because these two
years are crucial for testing the corporate governance policy related to independent directors compensation.
The  ndings provide opportunistic behavior on part of Independent director in relation to their compensation and
shareholders wealth as well weak institution norms with respect to compensation structure.

Keywords

Executive Compensation Corporate governance Independent director Indian  rm Firm performance.

References

Barkema, H. G. and L. R. Gomez-Mejia. 1998. Managerial compensation and firm performance: A general research framework. The Academy of Management Journal, 41(2): 135–145.
Brealey, Richard A., and Stewart C. Myers. 2003. Principles of Corporate Finance, 7th Edition, McGraw-Hill/Irwin, pp. 22–23.
Brigham, Eugene F., and Michael C. Ehrhardt. 2002. Financial Management: Theory and Practice, 10th Edition, Harcourt College Publishers, pp. 10–11.
Buck, T., Bruce, A., Main, B., & Udueni, H. (2003). Long Term Incentive plans, Executive Pay and UK Company Performance. Journal of Management Studies, 1709–1727.
Devers, C. E., Cannella, A. A., Jr., Reilly, G. P., & Yoder, M. E. (2007). Executive compensation: A multidisciplinary review of recent development. Journal of Management, 33: 1016–1072.
DiMaggio, Paul J., & Powell, Walter W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48: 147–160.
DiMaggio, Paul J., & Powell, Walter W. (1991). Introduction. In P. J. DiMaggio & W. Powell (eds.), The New Institutionalism and Organizational Analysis, pp. 1–38. Chicago: University of Chicago Press.
Duffhues, P., & Kabir, R. (2008). Is the pay-performance relationship always positive? Journal of Multinational Financial Management, 45–60.
Ghosh, A. (2006). Determination of executive compensation in an emerging economy: Evidence from India. Emerging Markets Finance and Trade, 42: 66–90.
Ghosh, Arijit. (2003). Board Structure, Executive Compensation and Firm Performance in Emerging Economies: Evidence from India. IGIDR Working Paper Series, Mumbai.
Gibbons, R., & Murphy, K. J. (1990). Relative Performance Evaluation for Chief Executive Officers. Industrial and Labor Relations Review, 43(3), 30S–51S.
Hawley, A. (1968). Human Ecology. In Sills, D. L. (ed.), International Encyclopedia of the Social Sciences, pp. 328–337. New York: Macmillan.
Jensen, Michael C. (2001). Value Maximization, Stakeholder theory, and the Corporate Objective Function. Amos Tuck School of Business, Dartmouth College Working Paper No. 01-09.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, Vol. 3, pp. 305–360.
Jensen, M. C., & Murphy, K. J. (1990). Performance Pay and Top-Management Incentives. Journal of Political Economy, 98(2), 225–264.
Lippert, R., & Moore, W. (1994). Compensation Contracts of Chief Executive Officers: Determinants of Pay-Performance Sensitivity. Journal of Financial Research, 17(3), 321–332.
Main, B., Bruce, A., & Buck, T. (1996). Total Board Remuneration and Company Performance. Economic Journal, 1627–1644.
Meyer, John W., & Rowan, Brian. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology.
Moyer, R. Charles, McGuigan J. R., & Kretlow W. K. (2003). Contemporary Financial Management, 9th Edition, Thomson Southwestern, pp. 7–9.
Parthasarathy, A., Menon, K., & Bhattacharjee, D. (2006). Executive compensation, firm performance and corporate governance: An empirical analysis. Economic and Political Weekly, 41: 4139–4147.
Sun, S., Zhao, X., & Yang, H. (2010). Executive compensation in Asia: A critical review and outlook. Asia Pacific Journal of Management, 27(4), 775–802.
Oliver, C. (1991). Strategic Responses to Institutional processes. Academy of Management Review, 16(1), 145–179.
Oliver, C. (1997a). Sustainable competitive advantage: combining institutional and resource-based view. Strategic Management Review, 18(9), 697–713.
Sarkar, & Sarkar. (2012). Corporate Governance in India. Sage Publications, New Delhi.
Scott, W. R. (1987). The adolescence of institutional theory. Administrative Science Quarterly, 32(4): 493–511.
Sousa, R., & Voss, C. (2002). Quality Management Revisited: A Reflective Review and Agenda for Future Research. Journal of Operations Management, 91–109.
Yermack, D. (1995). Do corporations award CEO stock options effectively? Journal of Financial Economics, 237–269.
Zingales, L. (2000). In Search of New Foundations. Journal of Finance, 55(4), 1623–1653.

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Rakesh Yadav . (2020). Non-executive-Independent Directors, Pay-performance Sensitivity Analysis of Bombay Stock Exchange (BSE)-260 Firms. IITM Journal of Management and IT, 11(2), 27-33.

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[1] Barkema, H. G. and L. R. Gomez-Mejia. 1998. Managerial compensation and firm performance: A general research framework. The Academy of Management Journal, 41(2): 135–145.

[2] Brealey, Richard A., and Stewart C. Myers. 2003. Principles of Corporate Finance, 7th Edition, McGraw-Hill/Irwin, pp. 22–23.

[3] Brigham, Eugene F., and Michael C. Ehrhardt. 2002. Financial Management: Theory and Practice, 10th Edition, Harcourt College Publishers, pp. 10–11.

[4] Buck, T., Bruce, A., Main, B., & Udueni, H. (2003). Long Term Incentive plans, Executive Pay and UK Company Performance. Journal of Management Studies, 1709–1727.

[5] Devers, C. E., Cannella, A. A., Jr., Reilly, G. P., & Yoder, M. E. (2007). Executive compensation: A multidisciplinary review of recent development. Journal of Management, 33: 1016–1072.

[6] DiMaggio, Paul J., & Powell, Walter W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48: 147–160.

[7] DiMaggio, Paul J., & Powell, Walter W. (1991). Introduction. In P. J. DiMaggio & W. Powell (eds.), The New Institutionalism and Organizational Analysis, pp. 1–38. Chicago: University of Chicago Press.

[8] Duffhues, P., & Kabir, R. (2008). Is the pay-performance relationship always positive? Journal of Multinational Financial Management, 45–60.

[9] Ghosh, A. (2006). Determination of executive compensation in an emerging economy: Evidence from India. Emerging Markets Finance and Trade, 42: 66–90.

[10] Ghosh, Arijit. (2003). Board Structure, Executive Compensation and Firm Performance in Emerging Economies: Evidence from India. IGIDR Working Paper Series, Mumbai.

[11] Gibbons, R., & Murphy, K. J. (1990). Relative Performance Evaluation for Chief Executive Officers. Industrial and Labor Relations Review, 43(3), 30S–51S.

[12] Hawley, A. (1968). Human Ecology. In Sills, D. L. (ed.), International Encyclopedia of the Social Sciences, pp. 328–337. New York: Macmillan.

[13] Jensen, Michael C. (2001). Value Maximization, Stakeholder theory, and the Corporate Objective Function. Amos Tuck School of Business, Dartmouth College Working Paper No. 01-09.

[14] Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, Vol. 3, pp. 305–360.

[15] Jensen, M. C., & Murphy, K. J. (1990). Performance Pay and Top-Management Incentives. Journal of Political Economy, 98(2), 225–264.

[16] Lippert, R., & Moore, W. (1994). Compensation Contracts of Chief Executive Officers: Determinants of Pay-Performance Sensitivity. Journal of Financial Research, 17(3), 321–332.

[17] Main, B., Bruce, A., & Buck, T. (1996). Total Board Remuneration and Company Performance. Economic Journal, 1627–1644.

[18] Meyer, John W., & Rowan, Brian. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology.

[19] Moyer, R. Charles, McGuigan J. R., & Kretlow W. K. (2003). Contemporary Financial Management, 9th Edition, Thomson Southwestern, pp. 7–9.

[20] Parthasarathy, A., Menon, K., & Bhattacharjee, D. (2006). Executive compensation, firm performance and corporate governance: An empirical analysis. Economic and Political Weekly, 41: 4139–4147.

[21] Sun, S., Zhao, X., & Yang, H. (2010). Executive compensation in Asia: A critical review and outlook. Asia Pacific Journal of Management, 27(4), 775–802.

[22] Oliver, C. (1991). Strategic Responses to Institutional processes. Academy of Management Review, 16(1), 145–179.

[23] Oliver, C. (1997a). Sustainable competitive advantage: combining institutional and resource-based view. Strategic Management Review, 18(9), 697–713.

[24] Sarkar, & Sarkar. (2012). Corporate Governance in India. Sage Publications, New Delhi.

[25] Scott, W. R. (1987). The adolescence of institutional theory. Administrative Science Quarterly, 32(4): 493–511.

[26] Sousa, R., & Voss, C. (2002). Quality Management Revisited: A Reflective Review and Agenda for Future Research. Journal of Operations Management, 91–109.

[27] Yermack, D. (1995). Do corporations award CEO stock options effectively? Journal of Financial Economics, 237–269.

[28] Zingales, L. (2000). In Search of New Foundations. Journal of Finance, 55(4), 1623–1653.