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India Inc pampering independent directors with fat pay-cheques

PALAK SHAH Mumbai | Updated on August 17, 2021

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SEBI has capped fee at ₹1 lakh/sitting, but many paid crores; seen as convenience pay to manage shareholder or regulatory dissent

Minority shareholder advisory firms have raised concerns about India Inc handing out fat pay-cheques to some independent directors, who are said to be receiving from ₹1 crore to ₹5 crore per annum. SEBI has capped the sitting fees of IDs at ₹1 lakh per board meeting.

While the market regulator has repeatedly said that IDs should be crusaders for corporate governance and the voice of minority shareholders, shareholder advisory firms say the large payments and commissions to some IDs maybe like a 'golden handcuff', thus putting them in a conflict with their role.

Should be voted out

“Most highly paid IDs should be voted out by minority shareholders. Like we saw in the case of Vedanta, such huge commissions coming from companies may act as impediment or undermine the true purpose of IDs. After all, who would want to speak up on the lack of corporate governance issues and risk losing this bulky pay package,” says Anil Singhvi, founder, IiAS.

Vedanta case

In the case of Vedanta Ltd, institutional shareholders rejected the re-appointment of independent directors, including former SEBI chairman UK Sinha. Sinha's last remuneration at Vedanta was over ₹92 lakh, per the latest annual report. According to sources, institutional investors were not happy with Sinha for failing to oppose the low floor price that Vedanta board approved during the delisting offer this year. Sinha, however, continues as the ID on the backing of Vedanta promoter votes.

There are several IDs taking home a hefty packet.

OP Bhatt, a former chairman of SBI, has been among the top 10 highest-paid IDs for the past few years. Last financial year, he earned a total of ₹4.8 crore in commissions from three Tata group companies. Bhatt was paid ₹2.3 crore by TCS and ₹2.13 crore by Tata Steel.

 

The big earners

Erstwhile SBI chief Arundhati Bhattacharya, former RBI Deputy Governor Shyamala Gopinath, Punita Kumar Sinha, late Nanoo Pamnani, Rajyalakshmi Meka Rao, YP Trivedi, Ireena Gopal Vittal, Shikha Sharma, Aman Mehta, MK Sharma, Shailesh Haribhakti and Raghunath Mashelkar are among the Top 20 highest paid IDs in India.

Tech Mahindra's Rajyalakshmi Meka Rao, who was a member of the Film Censor Board and an advisor to the insurance regulator, was paid ₹5.07 crore in 2018-19.

Pamnani, the former banker with Citi, was getting ₹4.63 crore as an ID in four Bajaj Group companies before he passed away in February 2020. Former HSBC banker Aman Mehta was paid ₹3 crore by TCS. William Aurthur Owens, a former US Navy official, earned ₹2.98 crore from Wipro for his role as an ID.

“For companies, the large pay-cheque to IDs is just a convenience commission to manage shareholder or regulatory dissent, defeating the very purpose for which they are elected. In fact, at the time of their appointment, companies should clearly spell out the time these directors are expected to spend on the companies and their remuneration. Shareholders should vote on their appointment and remuneration together just like others,” said Singhvi.

Though SEBI had capped the sitting fees of IDs at ₹1 lakh per board meeting, companies have been paying them large commissions, experts say. A glance through the annual reports of a few companies shows that ID commissions were a tad lower than the CEO’s, all for attending a few meetings.

‘Golden handcuff’

“In the larger scheme, paying such high commissions for some IDs is like the golden handcuffs. There is a wide-ranging debate on the issue in the US, too. But it's high time institutional shareholders took a stand,” says Shriram Subramanian, Founder, InGovern Research Services.

J N Gupta, former SEBI official and founder of SES proxy advisory, says that it is difficult to generalise and put all of them in one bucket. “The golden handcuffs theory may only be true for some. We cannot say that everybody is lacking character. Investors should wake up and be proactive and therein lies the solution,” he says.

Published on August 16, 2021

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