Bigger bounties for independent directors as companies queue up

livemint.com:

insurance companies is capped by the Reserve Bank of India at Rs20 lakh. Independent directors fall under the subset of non-executive directors. “Life Sciences, which is largely a promoter-led sector, witnessed the highest growth in independent director compensation as two companies introduced the component of commission in their remuneration structure compared to 2018," said Dinkar Pawan, director, human capital, at Deloitte.

Those two companies did not pay commissions to independent directors before the pandemic years but have started doing so since 2021, according to Deloitte. The consulting firm did not disclose individual company data. An independent director’s remuneration is largely dependent on a mix of fees for attending board meetings, called sitting fees, and commissions linked to a company’s performance.

While sitting fees are capped at Rs1 lakh, commissions are expected to increase. “We expect that the pay mix will become more skewed towards commission in the coming years as more firms hit the sitting fee cap," said Pawan. Currently, about 84% of a director’s remuneration is in the form of commissions, with sitting fees accounting for the remaining pay; excluding banks and insurance companies, the commissions average about 89%.

The sitting fees are dependent on whether a director attends a regular board meeting or an audit/nomination/remuneration committee meeting. Per Deloitte’s study, the median sitting fees for board meetings increased from Rs50,000 in FY2018 to Rs1 lakh in FY2023. Establishing a well-defined and role-based remuneration structure, Pawan said, would increase transparency and help attract the right talent to meet the increasing demand for, and expectations from, independent directors.