Former Sebi chairman supports increase in director fees

Recognizing the increased responsibilities of boards and directors and the longer time required for productive board meetings, M. Damodaran, former chairman of the Securities and Exchange Board of India (Sebi), recommended an increase in directors’ sitting fees.

The fifth edition of the Excellence Enablers report, sponsored by Damodaran, states: “If directors are required to devote significant time and contribute to improving company performance, it is necessary to provide them with appropriate remuneration for their attendance at meetings.”

“For more companies, increasing seat fees is appropriate $$100,000 per meeting. It may also persuade those who can add value to the board but who are distant from the board to reconsider their position vis-à-vis board directors,” he further said in the report.

In fiscal year 2024, only 29 of the 72 companies surveyed paid $Data collected in the report show that directors’ sitting fees are as high as 100,000 yuan. The maximum amount payable to a director is between $In fiscal year 2024, 34 companies provided 21,000-50,000 employees.

According to Rule 4 of the Companies (Appointment and Remuneration of Managers) Rules 2014, the company may pay directors a meeting fee for attending a meeting of the board of directors or committee, which fee shall be determined by the board of directors and shall not exceed $$100,000 per meeting.

committee meeting

The report states that board committees should spend almost as much time as board meetings and at least as much in-depth analysis. It is therefore time to significantly increase the meeting fees of at least these committees, keeping in mind the statutory limits.

Directors should be appropriately remunerated for their contribution to company performance and profits, and the law provides for the payment of profit-linked commissions to different categories of directors, the report said.

“While the statutory cap on the amount of profit-linked commission paid to non-executive directors (NED) is 1% of the company’s net profit, the actual amount paid, especially to independent directors (ID) in some cases, is seriously low within prescribed limits,” it said.

The report recommends that companies need to revisit profit-related commission amounts so that qualified directors can actively join boards and remain in office when independent directors no longer have stock options.

“For the benefit of the company, those excellent IDs who contribute their valuable time to the company need to be compensated appropriately. Identifying a number as the total commission to be paid and using only a portion of that amount to compensate IDs is an unacceptable proposition . From the percentage of profits, a large portion should be set aside for compensating IDs to ensure their involvement in the company.”

More than 4 meetings

The report also shows that most companies have held more than the minimum four board meetings in the past four years.

While the minimum number of board meetings stipulated by laws and regulations is four, Damodaran recommends holding at least six board meetings to be able to extract more value from the board.

The survey is based on information disclosed in annual reports or stock exchanges or on the websites of Nifty 100 companies.

The report noted that in fiscal 2021, 86.5% of board members had 100% attendance, while this dropped to 74.7% in fiscal 2024.

The report added that as of March 31, 2021, 21 companies (of which 14 were public sector undertakings and 5 were public sector banks), 3 PSUs did not have independent directors (IDs). In fiscal year 2024, the number of non-compliant companies with less than the required minimum number of identification documents was reduced to four.

According to Section 149(4) of the Companies Act 2013, the number of independent directors in every listed public company should account for at least one-third of the total directors.

Average age of directors

Given the pace and nature of change in the economy and corporate world, the inclusion of young people on boards will increase board relevance and prepare boards for the future, the report said, adding that as of March 31, 2021, 439 identities Among the certificates, 32 are less than 50 years old. It is said that the youngest ID is 35 years old and the oldest ID is 93 years old.

In comparison, as of March 31, 2024, 19 of the 561 ID cards were less than 50 years old. The youngest ID is 37 years old and the oldest ID is 89 years old.

When talking about the importance of director tenure, the report stated that the statutory two-term term (each term is a maximum of 5 years) solves the problem of director tenure well. “As for non-ID individuals, including those who are likely to retire and seek re-election, the total time they serve on the board should not be so short that they merely exist on the board without making sufficient contributions. At the same time, a term that is too long can result in stale and prevents the introduction of new directors bringing new insights and, in some cases, greater contextual relevance,” it said.

From the date of first appointment, as of March 31, 2021, the average tenure of the 937 directors was 7 years, with the longest term being 53 years. The situation changes slightly in 2024, with the average tenure of the 1,051 directors being 6 years and the maximum being 56 years.

As per Section 149(10) of the Companies Act, 2013, independent directors can serve on the board of directors of a company for a maximum period of five consecutive years but are eligible for reappointment after a special resolution is passed by the company and the appointment is disclosed in the board report.