IMPACT OF DIRECTORS COMPENSATION

ON COMPANYS PERFORMANCE

Presented By:
Ravi Kanaujia
(29NMP49)
Sanjay Yadav (29NMP50)
Anil Kardam (29NMP78)
 Corporate governance issues in India
and Developed nations
The key issues in corporate governance in India
are related to Principal Principal conflict.
In contrast, in developed countries of Europe
and the US, the nature of corporate governance
issues were related to Principal-Agent conflicts.
The complexity
Most of the corporate governance guidelines in India
are derived from European models of corporate
governance regulation.
The problem is compounded by weak enforcement
of corporate governance regulations through Indian
legal system
 Role of independent directors
The intent or objective of corporate
governance is to bring transparency and
fixing accountability of the board of
directors.
The role of independent directors has
become very important to achieve these
objectives of corporate governance in India.
Therefore, the selection of independent
directors in Indian corporates is an
important issue.
 Literature Review
CEO Compensation and Company
Performance for companies listed in
NYSE - By KJ Sigler, 2011
CEO COMPENSATION: RELATIONSHIP
WITH PERFORMANCE AND INFLUENCE OF
BOARD OF DIRECTORS for the Swedish
companies by Usman Tariq , 2010
Article based on study titled as Impact of
Board Composition on Company
Performance by leading governance
limited, 2013
Independent directors and their
Compensation
The role of independent directors is empowered by
defining
The selection criteria
The performance evaluation mechanism
Establishing the guidelines for fixing their
compensation

The compensation structure of independent

directors:
Sitting fees for meetings attended
Annual commission.
Scope of work & Source of data
The present work shows the
relationships between compensations
as independent variables and
companys performance as the
dependent variable.

The secondary data has been taken

from PROWESS and CAPITALINE for the
purpose of this study.
 Data Collection
09 sectors/industries have been
covered. These sectors are:
IT & ITES
Pharmaceuticals
Power
Cement
Automobile
Infrastructure
Oil & Gas
Banking
Heavy Industry
 Data collection
Top 15 companies from each sectors
have been considered based of their
market capitalization. The companies
are selected from BSE 500.
The market capitalization is taken as
the annual closing share price of the
company X no. of shares
outstanding.
A total of 102 companies data has
been taken for the analysis.
 Data collection
The data has been collected for the fiscal 2013-
14 & 2014-15.
The data :
For Independent variables:
Compensation of Independent Directors.
Compensation of Director

For dependent variables:

Revenue
Profit
Earning per share (EPS)
Return on capital employed (ROCE)
Return on assets (ROA)
No. of employees
 Data Synthesis
The data for analysis has been derived from the
collected data in terms of
For independent variables:
Average %age change in the compensation of
independent directors
Average %age change in the compensation of
independent directors

For dependent variable:

% change in revenue
% change in profit
% change in EPS
% change in ROCE
% change in ROA
% change in No. of employees
Data Analysis
 Conclusion
Correlation Matrix
Indp.
Dir Rev Profit ROCE ROA EMP EPS
Dir
Indp.
Dir 1.0000
1.000
Dir
0.2506 0
0.012
Rev
0.0665 7 1.0000
0.327
Profit
0.3313 9 0.1462 1.0000
0.109 -
ROCE
-0.0206 8 0.1799 0.4218 1.0000
0.110 -
ROA
-0.0230 3 0.1792 0.4190 0.9996 1.0000
-
EMP 0.095 - -
-0.0022 1 0.5439 0.0128 0.2093 0.2068 1.0000
 Regression
Independent Result
Dependent value of R2
variable Variable
Independent Revenue 0.004418705

Director Revenue 0.00016111

Independent Profit 0.109752069

Director Profit 0.107496279

Independent Director EPS 7.81831E-06

Director EPS 0.009293612

Independent ROA 0.000527906

Director ROA 0.012174996

 Conclusion
Corporate Governance(CG) is still in
evolving stage.
There is still limitations of standardize
CG practices in India.
There is a limitation of data availability
and data coherency(specially
compensation).
Except few miscellaneous cases,
executive compensations are not directly
affecting the
output of company