After capping the variable pay of the top brass of stock exchanges and other capital market institutions, the Securities and Exchange Board of India (Sebi) now wants to regulate salaries of CEOs in corporate India.

“It may be noted that, on average, the remuneration paid to CEOs in certain Indian companies is far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect,” a discussion paper released by Sebi on Friday, said.

The capital market watchdog believes the remuneration should reflect a “balance between fixed and incentive pay” and that regulatory disclosures should include the “ratio of the remuneration of each director to the median employee’s remuneration.”

Sebi intends to bring in these amendments in the listing agreement and has sought public feedback on the same. The regulator is looking at aligning the requirements of Clause 49 with those in the Companies Bill 2011 passed by the Lok Sabha in the winter session of Parliament.

Sebi also feels independent directors should not be entitled to any remuneration, other than sitting fees, reimbursement of expenses for participation in board meetings and profit-related commission as approved by the members. These are already part of the Companies Bill.

The regulator plans a complete overhaul of the corporate governance norms by putting in additional checks and balances for the selection and continuous evaluation of independent directors while giving additional powers to minority shareholders.

The discussion paper also questions the practice of giving preferential rights to private equity or any other institutional investor with regards to board nominations and access to price-sensitive information.

“It has to be examined whether a listed company should be permitted to enter into such an agreement granting superior affirmative rights to selective investors,” the Sebi paper said, highlighting the fact that in some agreements between the company and the investor, the presence of a nominee is necessary to constitute a quorum.

The regulator is also evaluating how minority shareholders can be given more say in the selection of independent directors. “It may be explored as to whether listed companies beyond a market cap need to be mandated to have at least one small shareholder director,” says Sebi.

“At present, the appointment or the removal of independent directors is done through election by majority. As such, they occupy their position at the pleasure of the controlling shareholders and may therefore be prone to act in accordance with the will of the major shareholders,” it says.

Meanwhile, on various issues related to the tenure, remuneration and number of directorships for independent directors, the regulator has attempted to align the requirements of Clause 49 with those proposed in the Companies Bill 2011.

The regulator wants to amend the listing agreement by removing the reference to payment of stock options to independent directors as the same is prohibited under the Companies Bill. It has also proposed to amend Clause 49 so that evaluation report of independent director are based on their attendance and contribution to the board/committee meetings.

This, according to the regulator, should be factored in while seeking the reappointment of an independent director.

It has also been proposed to exclude nominee directors from the category of independent directors to align the provisions of Clause 49 with the Companies Bill.

Sebi has noted that the Companies Bill contains detailed provisions pertaining to corporate governance and once it is enacted, the entire clause 49 may be revisited to make it consistent with the new norms.

It has, however, said that it can impose more stringent conditions to the listed companies through the listing agreement than those proposed in the Companies Bill. For instance, the listing agreement has more stringent requirements with regards to the composition of the board compared to the Companies Bill and hence proposes to continue with the former.

The proposals also call for a whistle blower policy in all listed companies as the same is currently not part of the mandatory requirements under the listing agreement. The regulator has also sought feedback on the issue of fixing a minimum and maximum age for independent directors.

Checks, balances & board Seats

* Remuneration of company CEOs should reflect a balance between fixed and incentive pay

* Disclosures must include the ratio of the director’s remuneration to median remuneration

* Check preferential rights to big investors on board nominations, price-sensitive information

* Listed cos beyond a market cap may need to have at least one small shareholder director

* Exclude nominee directors from independent directors’ category to align with Companies Bill

(The Financial Express)