CEO pay has been increasing at a quicker pace than profits. Even in FY21, although some industry leaders voluntarily took pay cuts as a consequence of COVID-19, several other increased their pay despite muted performance, reduction in employee headcounts, and reduction in employee costs. Although very few resolutions in this category were defeated in FY21, several faced investor push-back. This is a pointer that remuneration resolutions are steadily becoming critical to investors and needs more focus.
Remuneration is the responsibility of the nomination and remuneration committees (NRC), but the NRCs, at least to investors, appear detached regarding setting CEO remuneration, including the accompanying disclosures in the resolutions being presented to shareholders.
Shareholder resolutions are drafted by secretarial teams with a view of providing as much flexibility as possible – which leads to more opacity than transparency for investors. Investors tend to vote in the hope that past practices will determine the future road map for executive compensation. Because investors consider executive remuneration a material aspect of a company’s governing structures, NRCs must get themselves involved in the drafting of the remuneration resolutions and ensuring there is clarity regarding intent.
As Indian companies become increasingly global operationally and financially, the NRC’s need to benchmark their practices to global expectations. They need to focus on explaining the basis of CEO remuneration and making disclosures for shareholder approval.
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