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More independent directors earn in crores now

There were 43 independent directors who earned more than Rs 1 crore from a single company.

, ET Bureau|
Updated: Dec 05, 2019, 08.48 AM IST
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The average pay of MDs and CEOs of companies in FY19 was about Rs 6.5 crore, according to an ET analysis of salaries of CEOs, excluding promoters
MUMBAI: The Rs 1 crore-plus club of independent directors rose over fourfold to 89 in FY19 from 21 in FY13, according to market tracking firm Prime Database, as companies sought to attract board members from a dwindling pool of such candidates.

There were 43 independent directors who earned more than Rs 1 crore from a single company even as the government has been looking to cap their remuneration to ensure impartiality. Companies that gave over Rs 1 crore to a single independent director included Bajaj Finance, Bajaj Holdings & Investment, Dr Reddy’s Laboratories, HCL Technologies, Indiabulls Housing Finance, Infosys, Reliance Industries, Tata Chemicals, Tata Consultancy Services, Tata Elxsi, Tata Steel, Tech Mahindra, United Breweries and Wipro.

While higher compensation is believed to impact the independence of directors, experts said limiting compensation will make it more difficult for companies to attract qualified people when the pool is already shrinking due to increased liabilities they could face.

“Any kind of limit on the independent directors pay will not serve the purpose of attracting talented people,” said JN Gupta, managing director of Stakeholders Empowerment Services, a proxy advisory firm. “It should be commensurate with the effort, time and commitment.”

The 10 highest-earning independent directors in FY19 included former State Bank of India chairman OP Bhatt (on boards of companies including HUL and TCS), former Blackstone Group chief Punita Sinha (JSW Steel, Infosys), former director general of the Council of Scientific & Industrial Research RA Mashelkar (Reliance Industries, Piramal Enterprises), former Securities and Exchange Board of India chief M Damodaran (Larsen & Toubro, InterGlobe Aviation) and former McKinsey partner Ireena Vittal (Housing Development Finance Corp, Tata Global Beverages), according to Prime Database.

The compensation of the 89 directors ranged from Rs 1 crore to Rs 5 crore, according to the data based on 492 of the Nifty 500 companies for which annual reports were available for 2018-19. There were 72 independent directors in this category in FY18.

“Most of the companies paying above a crore to a single director are large ones. Smaller companies are still facing the challenge of attracting good people,” said Pranav Haldea, MD of Prime Database.

In the US, a top independent director would earn between $250,000 (Rs 1.8 crore) and $1 million, experts said.

“If compared with global benchmarks, a crore being given to an independent director in India is not excessive and is unlikely to make him/her feel obligated to the management,” said Arun Duggal, chairman of credit rating company ICRA and an experienced independent director. Also, as long as the director’s renumeration is one-fourth of the CEO’s compensation, it is fair, Duggal added.

The average pay of MDs and CEOs of companies in FY19 was about Rs 6.5 crore, according to an ET analysis of salaries of CEOs, excluding promoters.

The average take-home remuneration of independent directors, including sitting fees and commissions, increased 7% to Rs 19.04 lakh in FY19 from Rs 17.83 lakh in FY18, according to Prime Database.
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“The new Companies Act has put more onus and accountability on the independent directors and as a result, their number has shrunk. Companies have no choice but to pay more,” said Shriram Subramanian, managing director of proxy advisory firm InGovern.

According to the law, independent directors can be paid up to Rs 1 lakh as sitting fees per board meeting. Companies have the flexibility to pay more as commission. The total commission paid to independent directors in a company can be as much as 1% of its profit. The data showed that the top 100 directors accounted for as much as 36.47% of the total remuneration paid to independent directors in 2018-19.

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