One of main corporate governance problems that plague the investors is the high salaries paid to the executives. Such high salaries were justified to keep the executives motivated. This article emphasizes, based on literature survey, that in spite of the existence of the many perquisites, money is still the single most motivating factor for a person to work and perform in the organization. Compensation should consist of only two elements (1) basic pay and (2) short-term rewards in cash. The perquisites which come in an intrinsic form should be reduced; but, in practice, to satisfy the ego and prestige of the executives, one cannot reduce all the perquisites. Under these circumstances, the perquisites should be converted into cash and paid to the executives. One should take a short-term vision with regard to performance recognition and motivating employees, as long-term is very uncertain. Moreover, the gap between high salary and low salary is very high in the corporate world and also the working conditions are inhuman in most conditions. These conditions are against corporate governance and if the corporations don't improve in time, then a time will come when shareholders will pressurize the management to usher in changes.

Corporate Governance (CG) has been receiving considerable attention since the publication of the CG report by Sir Adrian Cadbury in the early 1990s. In India, Confederation of Indian Industry (CII) took first step to ensure CG's practices in Indian firms by setting up a National Task Force in April 1997 with Mr. Rahul Bajaj, Former President of CII and Chairman of Bajaj Auto Limited, as the Chairman. The Task Force included members from industry, the legal profession, media and academia. It presented the draft guidelines and code for CG in April 1997 at the National Conference and Annual Session of CII. Subsequently, Securities & Exchange Board of India (SEBI) constituted Kumar Mangalam Birla Committee to promote and raise the standard of CG in India which made certain mandatory and non-mandatory recommendations. These have formed part of Companies (Amendment) Bill 2003, which is yet to be passed. Later, SEBI also constituted Nareshchandra Committee in August 2002 on other aspects of CG and another committee headed by Mr. Narayan Murthy, Chief Mentor, Infosys Technologies Limited to review existing code of CG. SEBI introduced Clause 49 on August 26, 2003 for implementation of these recommendations. SEBI is the watchdog for CG in India which continually debates and introduces various amendments on various aspects of CG.

As small entrepreneurial firms grew during the industrial revolution in the 19^th century, managerial revolution followed, particularly in the UK and the US. This led to separation of ownership and the control of the firm shifted from entrepreneurs to hired professional managers, while ownership became dispersed among a multitude of unorganized shareholders. Berle and Means (1932) in their classic book, The Modern Management and Private Property, made a fundamental contribution in their analysis of the extent to which management of corporation has separated from its ownership. The authors call it quasi-corporation and without using the exact term they show a keen awareness of the concern of modern agency theory: the interests of the directors and managers can diverge from those of the owners and they often do. This separation phenomenon creates an agency relationship between the owners (shareholders) and the agents (managers). This agency relationship involves agency cost which is the difference between net profits of the firm (had the owners been the managers) and the realized net profit under agents' stewardship. Agency theorists believe that agency costs are unavoidable, however, it is possible to reduce agency costs by using systems to monitor agents' behavior and incentives to align the interests of the principals and those of the agents. Fama (1980) and Fama and Jensen (1983a and 1983b) have suggested a monitoring process of reducing agency costs. According to these authors, a firm may be considered a `nexus of contracts', whose expected relationship between the owners and executives is specified. These contracts simultaneously allow organizations to use the specialized knowledge of their executives and curtail their discretion.

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