Independent Directors’ Pay
January 12, 2011
In a recent seminar organized by CII in Mumbai on Corporate Governance, Mr.Martin Steindl, Corporate Governance Officer at International Finance Corporation, is reported to have suggested that Independent Directors should be paid at least as much as the CEO on a manday basis. He said that the daily salary of the CEO multiplied by the number of days spent by the independent director should form the basis of his compensation. (“Independent directors’ pay must be based on time spent on company work, says IFC official”,Business Line, December 18,2010). He is also of the opinion that Ids should not be paid just sitting fees but should be compensated adequately in terms of the time they have spent on company work.This is the first time I am finding anybody publicly making such a suggestion and also the media publishing it.
I did not find anything new in this suggestion since the same suggestion was made as early as February 2006 by me at a national conference held on February 24 & 25 at IBS, Ahmedabad(“Empowered Boards: Are We Moving In The Right Direction” ) . Of course, my suggestion was based on compensation received by the CEO on a manhour basis rather than on a manday basis as CEOs on a typical working day will put in anything between 10 to 14 hours.The rationale behind the suggestion was also given. The IDs are expected to advice CEOs on business related matters and hence he should be compensated at the same rate as CEO for the effort they take.
Now that a Corporate Governance Officer from a heavy weight international financial making the suggestion, I hope the business and industry will take it very seriously. But, I also have a suggestion that the compensation should not be beyond the efforts put in and also not below the effort put in by the independent directors. It should be just right.
