Companies’ compensation to their directors has been an important subject due to the growing number of independent directors (IDs) and non-executive directors (NEDs) on boards. The number of businesses spending Rs 1 lakh or more for every board meeting has been steadily increasing, according to the 2024 edition of the Excellence Enablers’ Survey on Corporate Governance.
However, the survey indicates that the highest percentage of respondents spend Rs 50,000 or less. Compared to 21 in FY21 and 26 in FY23, 29 businesses from the Nifty 100 paid a sitting fee of at least Rs 1 lakh for each board meeting in FY24.
Thirty-six paid Rs 50,000 or less in FY24, compared to 40 in FY23 and 42 in FY21. This shows that, over the last three years, firms have paid sitting fees for every meeting at a compound annual growth rate of 5.4%.
The yearly increase in fees is mostly consistent with the retail inflation rate that was in effect at the time.
This increase is not a precise figure; rather, it is based on an approximate calculation. Rough estimates indicate that in FY24, the average business paid a sitting fee of around Rs 63,500 per meeting.
The Securities and Exchange Board of India (SEBI) rules specify that sitting fees for each board or committee meeting must not exceed Rs 1 lakh.
Companies may provide non-executive directors up to 1% of their net profits as profit-linked compensation (PLC) in accordance with the 2013 Companies Act. The majority of Nifty 100 firms, according to the study, were simply utilising a portion of the amount to pay their IDs.
The survey found that 53 businesses paid 51–100% of their distributable profits as PLC to IDs in FY24, compared to 57 in FY22. From 13 of these firms in FY22, another 22 gave IDs less than half of their distributable profits as PLC.
The survey indicates, “Good IDs, who commit valuable time to the company, need to be appropriately compensated, in the interest of the company. From the amounts derived as a percentage of profit, a significant amount should be set apart for compensating IDs, so that their involvement in the affairs of the company can be ensured.”
The survey reveals that the pay gap between employees and full-time directors, including managing and finance directors, is growing.
Compared to 50 in FY21 and 51 in FY23, there were 56 businesses in FY24 with a ratio of median employee remuneration to that of full-time directors of 101 or greater.
By contrast, the number of businesses with a ratio below 100 decreased from 20 in FY21 and 21 in FY23 to 16 in FY24.
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