The government has been looking for ways to cap salaries of independent directors to ensure impartiality, as it is widely believed that higher remuneration tends to dilute the effectiveness of independent directors
The number of independent directors earning over Rs 1 crore is increasing, owing to a shortage of experienced people in the corporate industry, experts told The Economic Times.
The government has been looking for ways to cap salaries of independent directors to ensure impartiality. It is believed that higher remuneration tends to dilute the effectiveness of independent directors.
In 2017-18, the number of directors taking home more than Rs 1 crore was 86, nearly four times more than 23 in 2012-13, according to Prime Database. In 2016-17, this number was 73.
These 86 directors were paid salaries between Rs 1 crore and Rs 5 crore. In FY18, 31 independent directors with more than Rs 1 crore salaries were from one company alone.
The Securities and Exchange Board of India (SEBI) allows an independent director to be on boards of not more than seven listed companies at one point. Data suggests that the top 100 independent directors accounted for 28 percent of total independent directorship’s remuneration.
The take-home salary of independent directors increased from Rs 7.86 lakh in FY17 to Rs 8.3 lakh in FY18, a 7 percent growth. Prime Database compiled data from 1,655 of the 1,710 NSE-listed companies.
However, independent directors of India earn much less than their western counterparts, who take home salaries between Rs 1 crore and Rs 7 crore in each company.
Arun Duggal, Chairman of credit rating agency, ICRA, told the paper that India is still modest compared to the contribution and duties discharged by the directors.
"One needs to compensate adequately to get good people, particularly when the pool is limited," Shriram Subramanian, Managing Director of InGovern.
As the size and nature of businesses in India changed, the Companies Act of 2013 increased the liabilities of independent directors. It gave them more powers and increased their accountability to the company at the same time.
Independent directors can be paid up to Rs 1 lakh as sitting fees for every board meeting, but companies can pay more as commission. The commission paid to them can be up to 1 percent of the company's profit.
Former State Bank of India Chairman OP Bhatt, former Blackstone Group chief Punita Sinha, former Director General of the Council of Scientific & Industrial Research RA Mashelkar, former SEBI chief M Damodaran and former McKinsey partner Ireena Vittal are among the highest earning independent directors.Recently, the Corporate Affairs Ministry invited consultations on its proposal to cap remuneration of independent directors at 25 percent of their total income. This applies to the commission earned, not the sitting fees.