On the relevance of mandatory executive pay ratio disclosure: Evidence from India

Abstract

Amid growing concerns over excessive executive compensation and income inequality, some countries, including India, have mandated the disclosure of executive pay ratios. Using longitudinal data from the top 500 publicly listed Indian companies (2016–2021), our findings reveal that a high executive pay ratio negatively impacts organizational performance, with the effect being more pronounced in the service industry compared to manufacturing. Temporal analysis reveals a gradual decrease or stabilization in pay ratios over time, suggesting progress toward the regulatory goal of reducing pay inequality. We argue that high executive pay ratios, which deviate from normative expectations, trigger adverse stakeholder reactions. By bridging the broader discourse on pay disparity with the evolving implications of transparency mandates, our findings emphasize the importance of legitimate and socially acceptable pay dispersion practices and demonstrate the effectiveness of transparency regulations in addressing income inequality.