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Executive compensation has been a topic of hot debate all over the world since
long, due to various issues raised from time to time. The most prominent has been
the colossal level of compensation being paid to executives and the way the compensation is being
determined. For instance, the chief executives of America's 500 biggest companies got a collective
38% pay rise in 2006 to $7.5 bn (Decarlo, 2007). However, due to economic slowdown,
the average total compensation for the CEOs of USA declined 2% from $11.07 mn in 2007 to $10.4
mn in 2008. Towers Perrin's Global Compensation Planning Report Update 2009
reports that the estimated increase in the remuneration of the senior executives in 2009
was 8.9% in Argentina and 8% in Egypt. It was 7% and 4.5% in
the case of Indonesia and Russia respectively
(Towers, 2009). Executives in India are also getting huge remuneration
packages. During the financial year 2008, Reliance Industries' Mukesh Ambani topped the list of highest paid directors with
Rs. 44.02 cr, followed by Sun TV's Kalanithi Maran and Kaveri Maran with Rs. 32.41 cr
each. During the financial year 2008, there were around 100 directors who were in the $1 mn
(Rs. 4 cr) plus pay packet, and this number was just 30 during
the financial year 2006 (Sharma and Sinha, 2008). For the financial year 2009, Anil Ambani, the head of Anil Dhirubhai
Ambani Group, topped the list of highest paid directors with
a remuneration of Rs. 30 cr. Malvinder Mohan Singh of Ranbaxy and Sunil Bharti Mittal of Bharti Airtel
occupied the second and third positions
respectively (Rawani and Thomson, 2009).
The massive remuneration paid to top executives also caught the attention of
the Indian Prime Minister Manmohan Singh, and at a CII conference on inclusive growth in
2007, he told the corporate sector that princely executive pay packet drawn by a lucky few
has intensified income inequalities and social
unrest. Dr. Singh also said that the industry
should limit the pay of promoters and executives and reduce conspicuous
spending, and not profit at the cost of the common man. But the then president of CII, Sunil Mittal said that
CEOs' salaries cannot be legislated and profitability cannot be limited. Rising pay packages
may cause the prices to go up but this is a temporary phenomenon and ultimately free
market forces will prevail. People, who favor these increasing levels of executive pay in
India, compare the Indian executives' pay with the average pay of American executives. Average
pay of an executive in USA was $10.8 mn in
2006, whereas the highest paid Indian
executive Mukesh Ambani's remuneration was $8.5
mn, which is considered much lower than what an American executive is getting. But it has been found that Indian executives' average
pay increased at the rate of 14% in 2007, which was maximum in the Asia-Pacific
region.Activists have been raising their voice against these hefty pay packets being received by
the top-level executives. They opine that the executives should be paid as much as they deserve in
terms of their talent and performance. Thus, a debate is going on regarding the justification of
the hefty pay packages of the Indian executives and its determinants. In this paper, an effort
has been made to examine the personal characteristics of the executive directors as
the determinants of their compensation.
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