Managerial Compensation and Ownership: Evidence from India

We examine the relationship between promoter ownership and managerial compensation in India from 2010 to 2021. Using cross-sectional ordinary least squares (OLS) regression, we analyse all the listed firms on the National Stock Exchange (NSE), with the per cent of PO at low and high levels as our independent variable and chief executive officer’s (CEO’s) total compensation and chairman’s total compensation as our dependent variables. We find that there is an inverted U-shaped relationship between CEO’s total compensation and chairman’s total compensation. This indicates that when ownership is diversified, there is less monitoring by shareholders, and CEO and chairman tend to pay themselves more. However, when promoter ownership is higher, they have a more significant impact on managerial compensation and become more involved in management; consequently, CEO and chairman tend to receive lower compensation. The study contributes to corporate governance literature by highlighting ownership’s role in mitigating agency problems. This study also directs companies’ boards and policymakers on designing performance-aligned compensation frameworks, particularly in emerging markets characterised by concentrated ownership and unique governance structures.