Corporate Governance and the Limits of Legal Regulation: An InDepth Analysis of Executive Compensation at Amara Raja Energy Mobility Ltd.

By Dr. Shweta Mohan & Dr. Shantanu Braj Choubey

One of the primary objectives of the norms of corporate governance is to reduce the agency costs between management and shareholders. To this end, the agency theorists have argued that the executive pay should have a balance of incentives and disincentives to align their interests properly with those of the shareholders. This led to an exorbitant increase in executive pay, which is now often referred to as one of the primary reasons behind the growing inequality in the society. This has been true also for India, as it stands only second to the USA in the list of countries with highest Median Pay Gap Ratio (MPGR) or the CEO to median worker pay gap ratio. And one of the Indian companies that has regularly reported extremely high MPGRs is Amara Raja Energy and Mobility Ltd. (AREML), while still being fully compliant with the corporate governance norms. The present paper analyses the corporate governance of AREML since it was listed in 1996. It employs economic tools to understand the reasons behind the excessive executive compensation at AREML.

Keywords: Excessive Executive Compensation, Directors, Nomination and Remuneration Committee, Agency Costs, Inequality.

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