The remuneration of independent directors in the Nifty50 has soared by 11% CAGR (compound annual growth rate) between 2018-19 and 2023-24, according to a Deloitte study shared exclusively with Mint.
Interestingly, the remuneration of female independent directors has doubled in these five fiscal years, while their male counterparts have seen a 1.7-fold increase in the same period.
The study, titled Independent Directors’ Remuneration in India: Beyond the Headlinesfound that over the past five years, companies in the heavy manufacturing and IT sectors have paid more to their independent directors compared to other sectors due to their size, scale of operations and international director composition.
According to search firms, fees are expected to continue to rise and the participation of independent directors in various board committees is likely to increase in the future.
The remuneration of an independent director includes fees for attending board meetings and commissions linked to the company’s performance.
While commissions are expected to increase, per-session fees, which vary depending on whether a director attends a regular board meeting or a committee meeting, are capped at ₹1 lakh per meeting as per the Companies Act. Committee meetings could include audit, nomination and remuneration committee meetings.
“The demand for experienced and highly skilled independent directors continues to rise along with the increasing scale of Nifty50 companies,” said Dinkar Pawan, a director at Deloitte, who focuses on executive performance and rewards. “Independent directors also serve on boards in certain sub-sectors, leading to parity in remuneration levels over time.”
Women directors are on the rise
The study noted that the increase in remuneration of independent female directors is due to greater responsibilities.
For example, in 2019, a female independent director served on two committees on average, compared to three committees for male independent directors. By fiscal year 2024, the responsibility of female independent directors also increased to three committees on average.
By 2024, female directors will account for 22% of the board of directors of Nifty50 companies, up from 18% in 2019. This has led to a faster growth rate in their remuneration and a reduced gap with men, according to the Deloitte report.
The study only analyzed private companies and did not include the public sector.
“A large number of companies retain women as independent directors because there is now a minimum requirement for women on the board for certain types of companies in India,” said Aparna Mittal, founder of the Samāna Centre for Gender, Policy and Law. “But unfortunately, it remains a tick box for many.”
Mittal added that it is necessary to study whether female directors are truly independent or appointed by professionals and whether their opinions and views are really sought and considered before taking important decisions.
Directors in demand
Search firms have seen the search for independent directors become competitive over the past year.
“In the last nine months, we have worked on more than two dozen independent director searches, which is at least 50% more than what we did in the previous year,” said Navnit Singh, president and managing director of KornFerry in India.
The search firm noticed that India Inc. is open to hiring senior executives with relevant experience, but who may be board members for the first time. This is different from a few years ago, when directors came from a smaller talent pool who held board seats at various companies.
Demand for them has now become urgent, with more than 2,000 independent directors set to complete their terms by fiscal 2024, forcing companies to embark on a frantic search to replace them.
But finding the right candidate is not easy, even though the number of applicants available for the position has increased.
“Senior executives are taking certification programmes to qualify as directors, but companies want those who can contribute to their brand image,” said Pranshu Upadhyay, regional director and head of technology recruiting in India at search firm Michael Page. “At the same time, candidates want to be part of a company’s board, which will add prestige to their CV.”
Upadhyay added that “almost all companies want more female candidates as directors.”
Business schools and consulting firms offer certification courses on how to become a director.
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.