The economic slowdown may have hit hard investors and lower-rung employees, but the top echelons of India Inc seem to have remained unaffected by the fortunes of their companies.

An Indian School of Business (ISB) study of 2,500 listed companies has it that about 1,700 firms pay their chief executives a fixed remuneration without a variable component linked to stock performance. The findings are part of a research paper ‘Executive Compensation in India' prepared by Mr Rajesh Chakrabarti and Mr Krishnamurthy Subramanian, both assistant professors in Finance at ISB.

Mr Chakrabarti said that due to the wide regulatory latitude afforded to boards to set executive pay — post economic reforms — salaries for senior management have grown sharply since 1994. Senior executives' salaries are now sizable compared to that of the non-managerial cadre. With uncertainties in the domestic economy, this disparity has raised concerns that have so far been restricted mainly to the developed markets, he said.

“The stock-linked variable compensation as part of the salary will encourage executives to take calculated risks for the betterment of the company. It will also boost shareholders' confidence,” Mr Chakrabarti felt.

In the early 1990s, the Companies Act capped executive salary packages between Rs 7,500 and Rs 15,000 a month for companies with a capital of Rs 15 crore. Similarly, the annual expenditure on perquisites was limited to Rs 1.35 lakh a year. These ceilings were subsequently removed with the advent of liberalisation in 1993-94.

Emphasising that higher compensation for CEOs does not necessarily lead to better performance, Mr Subramanian said the Apple Inc CEO Steve Jobs received a salary of just $1 a year for almost three years even as the company scaled new heights. Of course, the company, with shareholders' approval, gifted Jobs a business jet for his achievement.

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