The Securities and Exchange Board of India (Sebi) has sought to rein in the pay of top management in listed companies, comparing cases of excessive pay in the case of executives linked to the promoters to ‘abusive related party transaction.’
Sebi has proposed requiring the approval of disinterested or minority shareholders for managerial remuneration beyond a particular limit, as part of a consultative paper on corporate governance issued on Friday.
“....the remunerations paid to CEOs (chief executive officers) in certain Indian Companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect,” it noted.
Promoters who are also part of the management need to be reined in, the paper suggested.
“...most of the Indian companies are managed by promoters and this brings in the concern of excessive managerial remuneration to executives forming part of promoter/promoter group, which partakes the nature of an abusive related party transaction,”
Sebi has also suggested that a “Nomination and Remuneration Committee” recommend the remuneration policy for directors, key managerial personnel and other employees, as required in the Companies Bill. There should also be a disclosure of the ratio of the remuneration of each director to the median employee’s remuneration, said the Sebi paper.
Sebi has sought to incorporate these provisions in the Listing Agreement.
Amit Tandon, managing director at Institutional Investor Advisory Services, believes that the regulator seems to be aligning the corporate governance code with OECD (Organisation for Economic Co-operation and Development) principles.
“This has been a highly debated topic in western countries and Sebi seems to have recognised its importance in incorporating in the listing agreement ...They also talk about succession planning, which would lead to healthy debate within the company,” he said.
The regulator has said that companies should have some succession planning put in place and disclose the same at periodic intervals.
The regulator has made other suggestions, including carrying out of corporate governance rating by the credit rating agencies, the creation of the post of lead independent director for leading the activities of such directors, and third party valuation in the case of related party transactions.
Sebi has sought to enforce compliance by imposing penalties on the company, and its officials for non-compliance either in spirit or letter.
The regulator has invited comments by January 31, 2013.