Govt. to fix lazy directors, links payment to activity

By SiliconIndia   |   Friday, 27 November 2009, 10:00 Hrs   |    2 Comments
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New Delhi: A new remuneration structure for independent directors could be in the offing with the government examining a proposal that entails a fixed and a variable component. This is to ensure that they are more regular in attending board meetings.

The government is examining the suggestions made by an industry task force on corporate governance on the remuneration structure of independent directors, said an official in the Ministry of Corporate Affairs. As per the proposal, the variable component of an independent director's salary would be available only when he or she makes himself or herself available for at least 70 percent of the meetings held by a company, reports Economic Times.

The task force was set up by the CII at the behest of the government in the aftermath of the Satyam scandal that had brought the role of independent directors under the scanner. The key suggestions made by the task force are being forwarded to the Parliamentary Standing Committee that is examining the new companies bill. "The idea is to ensure that directors play a more active role in companies' boards and safeguard interests of small investors," said the official, who did not wish to be identified.

It would also help the companies attract the best minds into boards of all companies, notwithstanding the profits they generate. With a part of the salary being fixed instead of the present system of drawing remuneration from net profits, the move may allow even loss-making or distressed companies to draw talent.

The role of independent directors in the decisions taken by a company board and their remuneration structure had come under intense scrutiny after the Satyam scandal.

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