Blockholder’s Presence, Board Structure, and CEO Compensation : Evidence from India

The present study investigates the impact of blockholder’s presence and board structure on CEO compensation level as well as the pay-performance relationship (PPR) for the companies included in the S&P BSE 500 Index during the period 2015-2019. A panel data analysis revealed the preference towards accounting-based measures for fixing CEO pay than market performance. Further, the firm’s largest shareholders are found to play a weak supervisory role in strengthening the PPR, indicating collusion with CEOs to extract private benefits of control. However, outside blockholders are actively monitoring CEOs by limiting excessive compensation and positively moderating the PPR. With respect to board structure, independent directors are found to have a significant role in aligning pay with performance. The stewardship role of CEOs is also highlighted wherein they effectively align PPR while holding the position of board’s chairman simultaneously. The study has important implications for practitioners as well as policy-makers. It reveals governance areas requiring efforts for improvement in order to design performance-based compensation contracts