Trends and convergence analysis of executive remuneration in the Indian banking industry

Abstract

This paper empirically examines the trends and convergence in the remuneration of executive directors in the Indian banking industry and across bank groups from 2005 to 2018. The study adopts Barro et al 's (1991) σ- and β-concepts of convergence in the dynamic panel econometric specification and Phillips and Sul's (2007, 2009) club clustering algorithm to investigate the convergence in executives' remuneration. The empirical results show evidence of β-convergence in remuneration paid to bank executives, implying the existence of a catching-up phenomenon in pay levels in the Indian banking industry and across ownership groups. However, a significant decline in the dispersion in executive pay is not observed. The club convergence identifies two convergent clubs and one divergent club in the industry with a considerably huge gap in the average pay across clubs. Our study offers sound policy implications to promote ongoing governance reforms toward an optimal pay-setting process.