Independent directors' pay more than doubles in 5 yrs

Bengaluru: Independent directors at India’s top blue-chip companies have seen a sharp rise in their compensation as their roles become increasingly challenging amid mounting business complexities, intense stakeholder scrutiny, and stricter regulatory requirements.

The median compensation for independent directors at these companies has more than doubled to Rs 72 lakh in FY23, from Rs 35.5 lakh five years ago, an analysis of Nifty 50 companies by specialised executive compensation advisory firm, Exec-Rem Advisors shared with ET has revealed.

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Independent directors in the 75th percentile of Nifty 50 companies earned an average of Rs 1.04 crore in FY23, up from Rs 67.6 lakh in FY18. At the lower end, companies in the 25th percentile paid independent directors an average of Rs 43.8 lakh, more than double from Rs 19.18 lakh in FY18, the study showed.

The study analysed 37 of the Nifty 50 companies, excluding public sector undertakings and banking and insurance companies since non-executive director pay is regulated in these industries by RBI and IRDAI respectively.

While increases in compensation have happened across the board, those in the lower quartile have seen a bigger jump. Companies in the 25th percentile have seen median compensation more than double from Rs 19.18 lakh in 2018; in comparison, those in the 75th percentile have seen a 54% jump from Rs 67.56 lakh.

Anubhav Gupta, managing director of Exec-Rem Advisors, said the trend reflects companies compensating independent directors suitably for the extra time and effort spent in ensuring good corporate governance.

“In a large-cap company, there are on average six board meetings, six audit meetings and four NRC (nomination, remuneration and compensation) meetings in a year. So, if one is part of audit and NRC alone, it is easily 35-50 hours of meeting time alone. Add to this the time spent on meeting preparation and the time contributed by directors outside the board and committee meetings, and it is a 25-30 day commitment. With this level of commitment, directors need to be adequately compensated for the value they bring to the table,” said Gupta.

The commission/fixed fee for an independent director ranged from Rs 24 lakh to Rs 1.65 crore in FY23 (10th percentile to 90th percentile range) with a median of Rs 56.4 lakh. The median commission/fixed fees have jumped 115% from Rs 26.25 lakh in the last five years, the analysis revealed.

The median sitting fee per independent director has almost doubled since FY18 from Rs 4.53 lakh to Rs 8.94 lakh. The Companies Act permits a maximum remuneration of Rs 1 lakh per meeting to each director as sitting fee.

Shriram Subramanian, MD at corporate governance advisory firm InGovern, said companies such as Infosys and Reliance Industries are paying independent directors upwards of Rs 2 crore. “Today, being an independent director is not just a calling card. There is much more accountability and independent directors are being scrutinised on their contribution, performance and attendance.”

Independent directors are also spending an increasing amount of time on aspects such as ESG, cybersecurity, for which they are even undergoing training in some cases, said Subramanian. “From time commitment, risk and contribution perspective, this compensation is reasonable. The pay trajectory will only increase,” he added.

“At Nifty 50 companies, compensation of these directors needs to be benchmarked against global standards,” said Sunit Mehra, partner at Hunt Partners, who specialises in corporate governance. “Remuneration levels of independent directors should reflect time commitment and responsibilities of the role.”


Harry Byrne

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