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Published : December 20, 2016 | Author : Urvashi
Category : Miscellaneous | Total Views : 276 | Rating :

Graduated from UPES, Dehradun Pursuing LL.M from NALSAR,Hyderabad

Corporate Governance Issues Regarding Remuneration of Executive Directors in India

One of the major issues that gained attention after the 2007 and 2009 financial crisis due to Wall Street movement was the unduly high compensation being paid to executives of financial institutions even when the corporations were in a state of collapse. This movement against the executive remuneration gained momentum throughout the world. In U.S and many other countries there was a lot of hue and cry about excessive compensation being paid to top executives.Even though in India the situation regarding excessive executive remuneration has not reached alarming levels yet this issue needs to be taken seriously at this stage itself .If not given proper attention then it is not long enough when this problem wouldbe quite glaring in India too.

Many recent corporate frauds such as Satyam fraud, Kingfisher’s fraud and many others have brought into light the dark side of Indian corporate governance practices. In almost all these frauds the executives were drawing a huge salary from the company at the expense of other stakeholders of the company be it shareholders or creditors etc.They used tricks to defraud the investors as well as creditors. Thus this issue needs adequate attention else it would lead to more such frauds.

Various studies on remuneration schemes of executives in Indian Companies have reflected majorly 3 issues –
1.The remuneration is not strictly based on performance. The highest paid executives are usually not from the best performing companies and many a times even when the value of shares are declining constantly there is no major effect on the remuneration of top executives.

2.There is a huge gap in the compensation level of executives and median employees. The supports for high remuneration state that this is due to the dearth of talent at the top level but even then such a glaring difference in the basic pay as well as in the % increase in pay as compared to median employees is not justified.

3.Also, the studies have found that the promoter CEOs are paid much more in comparison to Non promoter CEOs.

In this paper I would basically study the reasons behind the above findings and would majorly focus on efficiency of current regime in curbing the same and also the role of other interested entities which can serve as a control mechanism on executive remuneration.

For this purpose I would Firstly, analyze the context of executive remuneration and the issues associated with it wherein I will focus on agency problem and also the role of ownership structure in enhancing the problem. Then I would annalyse the efficacy of checks provided by the current regime on Executive remuneration i.e. Shareholders say on pay, Remuneration committee and linking Remuneration to performance. Lastly I would examine the role of Institutional investors as a control mechanism against executive remuneration.

Meaning of Remuneration

Remuneration has been described in section 2(78) of the Companies Act 2013.As per this definition any payment in the form of money or its equivalent would be counted as remuneration. Perquisites would also be included in determining total remuneration. Perquisites in this case are those as defined under the Income tax Act, 1961.

Remuneration can be paid in various forms like cash,medical benefits, retirement benefits, share options, shares, sitting fee and perks and allowances like contribution to provident fund, rent free accommodation, travelling expenses, car etc. It is usually a combination of various forms. Certain perquisites and compensations are explicitly exempted from being counted as a part of remuneration

2.1 Role of Executive Remuneration
The role of executive remuneration is to attract and retain top talent at executive position and incentivize them in the way that they work for the benefit of the company while furthering the objective of the company and increasing the value of the firm.

2.2 Interplay Between Fixed and Variable Component
The role of fixed component is to fulfill the immediate needs of the employees. All types of companies are open to certain sector specific risks and fixed component reduces the effect of this risk by assuring certain determined amount of income.

On the other hand, variable component can be used to align the interest of executives to the interest of company. For example if the executives are provided with certain number of shares as a part of remuneration thenbetter performance would lead to increase in theshare value of the company and would also increase executive’s compensation.

If the executives receive just fixed remuneration with no variable component then instead of working as incentive, it would actually dilute its effect and if the compensation would include only variable component then this would also frustrate the employee.

Thus there must be combination of fixed as well as variable component wherein the fixed component work as an incentive to work and the variable component makes sure that the work is done in the interest of the company. Also, it is necessary that there must be interaction between various forms of compensation and the remuneration scheme must be arranged in a way that it is incentive based.

Agency Problem

Berle postulated that“all powers granted to a corporation or to the management of a corporation, or to any group within the corporation, whether derived from statute or charter or both, are necessarily and at all times exercisable only for the ratable benefit of all the shareholders as their interest appears.”

In Companies there is a distinction between ownership and managements. Shareholders are the owners of the company but are not in a position to manage or control daily affairs. Thus the directors are appointed to perform this job of management of a company on behalf of shareholders. Shareholders are the principal and directors are the agents.

It is the duty of directors to further the interest of shareholders and to take such decision which increases shareholders’ value but many a times they take decision giving excessive weightage to their personal interest.
Adam smith stated that as the directors are managing the investment of some other people. It cannot be expected that they would perform the function with same diligence as they manage their own money. Negligence cannot be completely eliminated in such circumstances.

This is agency problem. It is problem in respect of discretionary power of the managers. Managers and shareholders can have conflicting interest. Agency cost is the result of this conflict of interests. These costs are inevitable in any organizations where the control is in the hands of the agents. Shareholders are ready to bear this cost to the extent that the benefits arising from separation of ownership from control outweighs the cost. However attempts must be made to keep this cost minimal.

Compensation scheme if properly structured is a method to reduce agency cost by aligning executive’s interest with that of shareholders. However it has been observed that due to improper regulations the executives in fact take undue advantage of the discretion given to them and tend to maximize their own compensation even when it is detrimental to the overall interest of the company. Thus instead of being a device to minimize agency cost it has become a tool for further exploitation.

Existing Regime In India

In order to ensure just and equitable compensation to executives, leaving no space for unnecessary dissipation of profits, the law intervenes to balance the conflicting interests. Remuneration of executives is governed by following-
·Companies Act,2013
·Schedule V of Companies Act 2013
·Clause 49 of Listing Agreement ,SEBI
·Companies (Appointment and Remuneration of Managerial Personnel) Rules,2014

Key Highlights-
·SECTION 197 of the Companies Act,2013has provided the maximum ceiling in case of compensation paid by public co. to its Managing Director, Whole Time Director and Managerwhich is total of 11% of the net profit of the company in that particular year. However if the remuneration is in excess of the prescribed ceiling then it must be approved by shareholders in the general meeting. The Act also stipulates ceiling on individual salary to be 5% of the net profits.

·Also in cases where there are no profits at all or the profits are not adequate, Schedule V of the Companies Act,2013provide with detailed rules regarding the amount that can be disbursed by company without Central government approval. For anything above that amount Central government’s approval is needed.

·The law has also imposed restrictions on the amount to be disbursed in other forms of remuneration such as a Central Government has declared a cap of Rs. 1 Lakh per meeting on the sitting fees of the directors.

·Any sanction of remuneration in the excess of prescribed limit without Central Government’s approval has to be refunded. Also the Company does not have a right to waive recovery of such amount unless permitted by Central Government.

·The law also provides for Disclosure of remuneration in board report. Central Government rules in respect of disclosure mandates the following disclosures to be made in the Board report-

1.Ratio of Compensation of director to that of a Median Employee.
2.Percentage Increase in CEO compensation and that of each Director.
3.Percentage increase in compensation of Employees in that year.
4.Relation between % increase in remuneration of executives and companies performance.
5.Increase or decrease in market quotation of shares for listed companies and for unlisted company’s variation in the net worth of a company.
6.Justification for increase in remuneration of managerial personnel.
7.Disclosure of the name of employee whose remuneration is more than Rs 60 Lakh per year and also if he is a relative of director or any manager then disclosure of this fact also.

·Secretarial audit report must also state the payment whether compliance has been met with regard to remuneration of Executive Directors.

Influence Of Ownership Structure

It is a common belief that countries where there is strict separation of control and ownership are pose to agency problems thus are more likely to face problems regarding Executive Compensation whereas countries where ownership and control is more or less in the same hands , such problems are not a threat.

In U.S and UK particularly the pattern of dispersed ownership in the companies is quite prominent. In other countries, including India, majority of companies are concentrated ownerships. The agency problem is quite visible in dispersed ownership because of clear distinction between ownership and control however even though majority shareholders have a say in the management of the company this does not lessen the problem instead exaggerates it.


In Concentrated ownership the interest of minority shareholders has to be protected not just against the executives but also against the majority shareholders ,so the regulations need to be more stringent. Moreover minority shareholders though given the power to vote are usually inactive as they are also aware of the fact that their individual vote doesn’t count much to make a difference. This worsens the situation as dominant shareholders can easily take most of the decisions they want even at the stake of minority shareholders.

One such decision often taken in this type of structure is high executive remuneration not based on performance of the company. Studies state that dominant shareholders who also hold theExecutive positionsof the company earn much more from their salary than what they earn from dividends on share.High salaries reduces the profit which is to disbursed in the form of dividend thus affecting the interest of minority.
The role of board also differs in both type of ownership structure. Inference can be drawn from this fact alone that in most of such countries there is no clause for mandatory remuneration committee. In India very recently through Section 178 of Companies Act 2013this provision has been mandated for all listed companies.

Performance And Remuneration-

The yardstick for appropriate executive remuneration is that level of compensation which serves as an incentive to preserve and attract talented executives who perform the task of pursing objectives of the corporation in order to increase shareholders value. This is known as “pay for performance”. Companies usually disburse a mix of fixed and variable component as salary to align pay of executives with performance of the company.
Even though the notion of pay for performance seems simple but in practice it is not. The Board as well as the remuneration committee first of all must be very clear about the determinants to measure performance. There is no straight jacket formula to quantify value creation. Stock prices efficiently indicate the increase or decrease in corporate value whereas the total return to shareholders more clearly reflects the value creation for a particular period. So particularly there is no most appropriate method for evaluating performance based compensation

The only criteria is that the performance measure must fulfill the following objective-
Firstly, the measure chosen must appropriately align the interest of executives with that of shareholders. Also there must be a proper interplay of fixed and variable component and thirdly there must be some control mechanism in place to fix the manipulation problem.

The problem is not just with who decides the remuneration but also what method is adopted to determine the compensation. The companies must adopt proper methods clearly considering the drawbacks of all methods to come to a conclusion regarding choice of measure.

The Indian Companies Act 2013 has tried to link the pay to performance by providing for maximum ceiling based on the net worth of the company and anything over and above the maximum limit has to approved by shareholders, also in case of inadequate profits no pay more than the amount prescribed in schedule V shall be given until the approval of Central Government.

However the provisions are not very stringent. The limits imposed are very general. In a family owned company or a concentrated ownership companies it is very easy to get shareholder votes and the salary can easily be doubled if the shareholder vote in favor. Moreover the studies show that executive salaries in India continue to rise even when the company is not performing well.Thus there is some gap left either in the implementation of the law or in law itself.

Very recent Data filed with SEBI regarding remuneration of employees of listed companies for the year 2014-15 reveals that even when the companies were suffering loss in a particular year the salary of executives were increasing and also that there was a huge gap between salaries of top executives and the median salary. One of such example is of Chairman and Managing director of Apollo tyres, Mr Onkar S Kawar, whose salary increased by Rs 11 crore when the profits of the company dropped down by 2.73% and hispackage is 1069 times the package of a median employee.

Second such major incidence is that of Kingfisher Air lines. Kingfisher’s CEO Sanjay Aggarwal drew a salary of Rs. 3 crore in the year 2013 when the company was clearly crashing down ,as in 2012 the airline was under Rs. 7000 crore debt and the salaries of other employees except the top executives had fallen drastically.

However the problem is not just with regulatory framework but also with reluctant behavior of many Indian companies. To enhance good governance is not just the role of the law making agencies but the corporation themselves have to take steps to further this intention. A good governance practice always helps the company in a long run. Infosys for that matter has realized this with respect to remuneration matters. Infosys has linked its CEO, Vishal Sikaa’s salary to the target of the firm for the 2021 i.e.20 billionworth. The salary of the CEO is directly linked to the performance.If other companies also introduce such tactics then this problem can be can be curbed with more ease.

Shareholder’s Say On Pay

There is a lot of cry about inclusion of shareholders say on remuneration, in other countries. India on the other hand already has this provision. This concept was brought after acknowledging the fact that Board of Directors often does not decide remuneration for executives on Arm’s length position. There are certain influences and biases involved which is detrimental to the interest of the company. The involvement of shareholders in determination of remuneration is a step forward to maintain their primacy.However for shareholders to take an informed decision so that the whole process can be effective there must be certain strict disclosure practices that too in the format that it can be easily understood by shareholders otherwise the whole process would just be for name sake.

In India if the remuneration to be given is above the précised ceiling, as given in section 197 of the Companies Act, 2013, then there ought to be approval from the shareholders through special resolution in a general meeting. Also there are a whole lot of disclosures via board report and also secretarial audit report that are to be made in the general meeting. Still it has been observed that this process is just a formality with no real benefits.

Reasons for the same are discussed below-
Firstly, In India most of the companies are concentrated ownership that too family run or promoter run companies. It is very easy to get the remuneration approved because the interested party is also the majority shareholder in such a case.

Secondly, Minority shareholders act like absentee shareholders. They are least interested in management of the company as they know that their say does not count. Moreover they do not have adequate knowledge to give informed vote.

Thirdly, in companies where promoters are the CEO, they themselves vote on their remuneration packages and being the majority shareholders there is rarely a chance when the resolution for approval of their remuneration is not passed.

This whole process of shareholders say on pay in India has been ineffective due to above mentioned reasons. Even though the legislation provides for the vote of shareholders, in practical it has just turned out to be another formality of compliance for Indian Companies. However if the proposal suggested by SEBI ,wherein the remuneration packages of promoter CEO or managerwould be approved by other non-interested shareholders and the promoter would not be allowed to vote onit i.e. the majority of minority rule would apply, is passedthen there are chances thatshareholders vote on pay would be more meaningful and effective.

Role Of Remuneration Committee

The role of remuneration committee is to devise the executives’ compensation in a manner that reduces agency cost. The compensation paid to executives must directly be related to the performance. The committee must make sure that executive is paid appropriately for each rupee he brings to the organization. For this purpose the remuneration committee must be truly independent and free from any prejudices.

It is a mandatory requirement for listed companies as per section 178 of the Companies Act, 2013 that the remuneration committee must include three or more non-executive directors half of whom must be independent. This is because it is a general assumption that such independent members are in a better position to protect shareholders interest and keep a check on activities of board so that it is not detrimental to the overall interest of the company. Compensation Committee is a standardized measure to curb the agency problem

Howsoever such committees have not proved very effective due to certain reasons.
Firstly, the committee is a mixture of executive as well as non-executive director thus chances of biasness are not fully eliminated.

Secondly, these non-executive directors also suffer from agency problem.

Thirdly, Independence of these directors is itself questionable. Often in Indian scenario these directors are friends or far off relatives of the executive directors also called the old boys network. Just for the sake of formality they exist in the company.

Fourthly, In order to legitimize high compensation for themselves, they tend to keep in terms with the executives by providing them with high remuneration.

Fifthly, Most of the non-executive independent directors are themselves executive directors of other companies or have been the executive directors in the past so they also have compassion towards other executive directors and thus support high compensation.

Studies show that the common belief i.e. the presence of non-executive director would be inversely proportional to the level of the remuneration is wrong. In fact more the number of non-executive directors on board more is the level of remuneration.This outcome reassures the theory of independent directors being captured by executives. This also questions the overall efficacy of Independent directors in furtherance of good corporate governance practices. For empowering the foundations of Independent directors there must be greater independence in directors rather than more number of independence directors.

Sun TV network which is a Chennai based company in India serves as a very clear example on this point. The salary of promoter directors of Sun TV in 2012-13 as compare to other employees was more by 1250 times. Such a huge gap is fallacious on the face of it. The company had a remuneration committee with an independent director as its head. Stake holder empowerment service’s managing director J N Gupta commented that"It clearly shows the independent directors have failed to implement fair remuneration policies”.

The insignificance of remuneration committee is unveiling the true picture which is quite opposite to the fake importance it has been provided in many countries. In this context the mandatory provision relating to remuneration committee proves to be of not much significance until the inherent flaws are fixed. There are high chances that the mandatory provision would just add to the compliance cost of the companies with no real results.

Impact of Duality of Role-Ceo Appointed As Chairperson of Theboard

There is a huge debate regarding the duality of the role given to CEO when he is also appointed as Chair of the board in certain Companies. CEO role is to determine strategies for the operation of the company. The CEO is responsible to the board of the company which is headed by chairman. The role of the board is majorly to assess company’s performance and stability. Being appointed by the shareholders, the board members are responsible for protection of the investors’ interest. The board also assesses the performance of other executives including the CEO.

Those who argue in favor of duality of role state that this increases the overall efficiency by ensuring unified command which leads to better decision making. Also, this type of arrangement tends to reduce the conflict of interest. However the conflicting and a stronger view is that this type of arrangements leads to poor governance of the company by disturbing the checks and balance system and undermining the separation of powers. It also makes the independence of the board questionable.

Studies have reported that companies where the CEO and the chairperson are different individuals , level of compensation of the top executives are comparatively low as compared to other companies where there is no clear separation between CEO and the Chairperson.This might be because when the CEO is also acting as the chair of the board then he gets the advantage to vote on his own remuneration which increases the chances of biasness in remuneration scheme. Even though there are independent director in the board but still it is quite easy for the chairperson to influence the activities of the board which creates a scope wherein such a position is open to abuse. Indian legislature has correctly acknowledges this fact. Section 203 of Companies Act 2013states that No same person can hold both the position of CEO as well as Chairperson barring a few exceptions stated in the Act.

Role of Institutional Investors

Institutional investors being the holder of substantial number of shares of the company have special interest in the working of the company. They act as control against the promoter s especially in concentrated ownerships. They can affect the decisions of a company in many ways as theyhave adequate say in the general meetings. They can also use this power to keep a check on executives remuneration as any remuneration beyond the prescribed ceiling has to be passed by a special resolution in the shareholders meeting.

In India however there is not much interference by the institutional investors in the governance of company. They tend to be the passive actors. Until now the remuneration proposals were rarely rejected in the general meeting. This may be because these institutions are either foreign institutional investors or state controlled investing companies. The government controlled institutions are not truly independent and are vulnerable to influence by companies and for the foreign institutional investor the cost involved in monitoring the decisions of Investee Company is quite high as compared to returns,so they don’t want to step into this work.Also in very rare circumstances if they raise their voice against excessive remuneration of executives their protest is nullified by the promoters exercising their vote.

The problem of cost however is mitigated by proxy advisory firms whose role is to provide well researched inputs to the institutional investors so that they can effectively interfere with the management of the company. In 2013 Ajit Gulabchand the man behind Lavasa was drawing salary which was 5 times more than the amount permitted by the Central Government. Proxy advisory firms brought this fact to the notice and he was made to return his excess salary.

Also lately institutional investors have pulled up their socks.In a very recent case of TATA they have disapproved the remuneration package of a director in excess of prescribed limits. This has led to a starting of an era of investor’s activism. Hopefully if institutional investors become more active their opposition can lead to good governance practices in the companies.

Excessive executive remuneration, not linked with performance, is a growing problem in companies in India. Data show that even when the companies are not performing well and the share value is declining constantly, the remuneration of executives is still touching skies. However the bigger problem with respect to Indian companies is that there is a huge gap between the salary of top executives and the other employees. Though supporters explain it to be a result of dearth of talent at top level but even then way too much difference cannot be justified. Drastic difference in pay levels are themselves evidence of some tricks in play in the governance of companies.

The problem is not with how the remuneration is decided but who decides the remuneration. Indian regime on this point fairly tries to link executive remuneration with performance and has provided detailed provision on method to determine remuneration but all this has not proved effective majorly because of the absence of actual independence in determination of compensation. Shareholders say on pay and the remuneration committee is just another compliance for the companies ,with no real outcomes. Also the limits on remuneration of executives are very general.

Law does have a responsibility to enhance good governance practices in companies however there are other actors sharing the burden. The Institutional investors, being equally responsible, must pull up their socks and cast informed votes while passing resolutions. They must start utilizing the voting power vested in them by law efficiently. The role played by proxy advisory firms in this respect is also crucial .They effectively serve as a counter against ill practices including inappropriate remunerations.

Lastly the companies must realize that good governance practices always pay well in long run. Awarding the good work adequately would lead to growth of the company in long run as it serves as an incentive to further the objective of the company and if the company would grow its employees would grow with it.Thus the problem is not with high executive remuneration but remuneration not adequately linked to performance and to effectively curb this problem all the participants must perform their role effectively to serve as a check mechanism.

#The fraud took place to divert company funds into real-estate investment, keep high earnings per share, raise executive compensation, andmake huge profits by selling stake at inflated price-Corporate Accounting Fraud: A Case Study of Satyam Computers Limited, at http://www.nja.nic.in/P948 Reading Material/P948 Audit of Fraud in economic crimes/ACCOUNTING FRAUD.pdf
#Prof. Parul Saxena, An Analysis of relation between Executive’s compensation and Firms Profitability: Cases of India (October 10,2016), http://accman.in/gyanpj14/2.pdf
#Balasubramanian, Bala N., Samir Kumar Barua, and D. Karthik. "Corporate Governance Issues in Executive Compensation: The Indian experience (2008–2012)."IIM Bangalore Research Paper426 (2013).
#Section 2(78) of companies Act 2013-“remuneration” means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax Act, 1961;

#Schedule V of Companies Act,2013
Section IV.— Perquisites not included in managerial remuneration:
1. A managerial person shall be eligible for the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II and Section III:—
(a) contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961 (43 of 1961);
(b) gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; and
(c) Encashment of leave at the end of the tenure.
2. In addition to the perquisites specified in paragraph 1 of this section, an expatriate managerial person (including a non-resident Indian) shall be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II or Section III—
(a)Children’s education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs. 12,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible up to a maximum
of two children.
(b)Holiday passage for children studying outside India or family staying abroad:
Return holiday passage once in a year by economy class or once in two years by first class to children and to the members of the family from the place of their study or stay abroad to India if they are not residing in India, with the managerial person.
(c)Leave travel concession:
Return passage for self and family in accordance with the rules specified by the company where it is proposed that the leave be spent in home country instead of anywhere in India.
Explanation I.— For the purposes of Section II of this Part, “effective capital” means the aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, over drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in case of investment by an investment company whose principal business is acquisition of shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.
Explanation II.— (a) Where the appointment of the managerial person is made in the
year in which company has been incorporated, the effective capital shall be calculated as on
the date of such appointment;
(b) In any other case the effective capital shall be calculated as on the last date of the
financial year preceding the financial year in which the appointment of the managerial person
is made.
Explanation III.— For the purposes of this Schedule, ‘‘family’’ means the spouse, dependent children and dependent parents of the managerial person.
Explanation IV.— The Nomination and Remuneration Committee while approving the remuneration under Section II or Section III, shall—
(a) take into account, financial position of the company, trend in the industry, appointee’s qualification, experience, past performance, past remuneration, etc.;
(b) be in a position to bring about objectivity in determining the remuneration package while striking a balance between the interest of the company and the shareholders.
Explanation V.— For the purposes of this Schedule, “negative effective capital” means the effective capital which is calculated in accordance with the provisions contained in
ExplanationI of this Part is less than zero.
Explanation VI.— For the purposes of this Schedule:—
(A) “current relevant profit” means the profit as calculated under section 198 but without deducting the excess of expenditure over income referred to in sub-section 4(l) thereof in respect of those years during which the managerial person was not anemployee, director or shareholder of the company or its holding or subsidiary companies.
(B) “Remuneration” means remuneration as defined in clause (78) of section 2 and includes reimbursement of any direct taxes to the managerial person
#L. Thevenoz and R.Bahar,Conflict of interest:Corporate Governance and Financial Market,45-48 (2006)
#Adolf Berle, "Corporate Powers as Powers in Trust", 44 Harvard Law Review 1049 (1931)
#Jensen, Michael C., and William H. Meckling.,"Theory of the firm: Managerial behavior, agency costs and ownership structure."3.4 Journal of financial economics, 305-360, (1976): brought forward the concept of agency cost in the ownership structure of a company. They stated that in this type of structures where the managers who are agents are also the utility maximizer as the principle i.e. Shareholder, there would exist the conflict of interest. This would thus involve some agency cost but the attempt must be made to keep this cost minimal.

# Clause 49 (IV) (E) of Listing Agreement-Remuneration of Directors
# Overall maximum managerial remuneration andmanagerialremunerationincaseof absenceor inadequacyof profits
# Section 134 of Companies Act, 2013-Financial statement, Board’s report etc.

# Rule 5,Appointment and Remuneration of Managerial Personnel Rules,2014-Disclosure in Board’s report
#Bala N. Balasubramanian, Samir K. Barua ,D. Karthik,Influence of Board Diversity and Characteristics on CEO Compensation: Contingent Effects of Concentrated Ownership,IIM Ahmedabad ,W.P. No. 2015-03-37,2015
#Section 178- Nomination and Remuneration Committee and Stakeholders Relationship Committee
(1) TheBoardofDirectorsofeverylistedcompanyandsuchotherclassor classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directorsout of which not less than one-half shall be independent directors:
Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.
#Jensen, M. and K. J. Murphy, “Performance Pay and Top-Management Incentives,” Journal of Political Economy,225,64 (1990)
#L. Thevenoz and R.Bahar,Conflict of interest:Corporate Governance and Financial Market,45-48 (2006)

#Chitra Narayanan and Jyotindra Dubey,Are our CEO’S overpaid?,Business Today, August 16, 2015.
# Joydeep Ghosh & N Sundaresha Subramaniam,1,500 lives, interrupted: Kingfisher Airlines' employees left high a
and dry,Business Standard, August 9, 2014
# Varun Sood and Dhanya Skariachan,Infosys CEO Vishal Sikka’s salary linked to IT firm’s $20 billion target,MINT, Oct 04 , 2016
# L. Thevenoz and R.Bahar,Conflict of interest:Corporate Governance and Financial Market,45-48 (2006)
# Section 197-Overall maximum managerial remuneration andmanagerialremunerationincaseof absenceor inadequacyof profits—
(1) The total managerial remuneration payable by a public company, to its directors,includingmanagingdirectorandwhole-timedirector,anditsmanagerinrespectofany financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits:
Provided that the company in general meeting may, with the approval of the Central Government, authorise the payment of remuneration exceeding eleven per cent. of the net profits of the company, subject to the provisions of Schedule V:
Provided further that, except with the approval of the company in general meeting,—
(i) the remuneration payable to any one managing director;or whole-time director or manager shall not exceed five per cent. of the net profits of the company and if there is more than one such directorremuneration shall not exceed ten per cent. of the net profits to all such directors and manager takentogether;
(ii) the remuneration payable todirectors whoare neithermanaging directors norwhole-time directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time director or manager;
(B)three per cent. of the net profits in any other case
#Ram Kumar Kakani and Pranabesh Ray,Managerial Remuneration in India: Of Changing Guidelines,Fatter Pay Packets And Incentives to Performance,XLRI Jamshedpur,Working Paper(02-03),July 2002
#Reena Zachariah,SEBI to rewrite rules on CEO compensation,The Economic Times, Nov 08, 2013
#Section 178- Nomination and Remuneration Committee and Stakeholders Relationship Committee
(1) TheBoardofDirectorsofeverylistedcompanyandsuchotherclassor classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directorsout of which not less than one-half shall be independent directors:
Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.
#Yaron Nili,The 'New Insiders': Rethinking Independent Directors' Role, 67 Hastings Law Journal ( August 10, 2016)
#Balasubramanian, Bala N., Samir Kumar Barua, and D. Karthik. "Corporate Governance Issues in Executive Compensation: The Indian experience (2008–2012)."IIM Bangalore Research Paper426 (2013).
# Cosh, Andy, and Alan Hughes. "Executive remuneration, executive dismissal and institutional shareholdings."International Journal of Industrial Organization15.4 (1997): 469-492.
# Manu Kaushik,The Importance of Being Independent,Business Today, Dec 22, 2013
# Bala N. Balasubramanian, Samir K. Barua ,D. Karthik, Influence of Board Diversity and Characteristics on CEO Compensation: Contingent Effects of Concentrated Ownership, IIM Ahmedabad , W.P. No. 2015-03-37,2015
# First proviso of sub-section (1) of section 203 of companies act, 2013 says:
Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or chief executive officer of the company at the same time after the date of commencement of this Act unless,-
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses;
# Aarefa Johari, Lavasa head was made to return his excess salary, but most Indian CEOs enjoy massive wages,(May 09, 2015 , 08:45 am),http://scroll.in/article/725378/lavasa-head-was-made-to-return-his-excess-salary-but-most-indian-ceos-enjoy-massive-wages
# Padma Venkat,Institutional Investors Reject Tata Motors Pay Resolutions: Is Tide Changing in India?,CFA Institute (23 July 2014), https://blogs.cfainstitute.org/marketintegrity/2014/07/23/institutional-investors-reject-tata-motors-pay-resolutions-is-tide-changing-in-india/

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