Cap independent directors' pay for services at 10%, says expert committee

It is recommended that fee should be capped at 20% of gross annual income

 An expert committee reviewing provisions in the Companies Act has recommended that the fee paid to an independent director for his services other than those given to the board by a company be capped at 10 per cent of his gross annual income to ensure his independence.

So far as overall remuneration of an independent director by a company is concerned, it is recommended that it be capped at 20 per cent of his gross annual income.

Shardul Shroff, the executive chairman of Shardul Amarchand Mangaldas who was a part of the committee, told Business Standard said the above two caps would ensure independence of the independent directors.

For other income for professional or any services to a company or its subsidiaries or associates or promoters, etc, other than board-related services, the same is limited to 10 per cent of the total income, he said. 

These directors are paid in two ways — through sitting fee and commission. While the sitting fee is not a concern, it is commission, which raises eyebrows. The commission could range from 1-3 per cent of a company’s net profit, depending on whether the company has a managing director or a whole time director. 

The committee, which recently submitted its report to Finance Minister Arun Jaitley, said it did not consider the sitting fee paid to IDs for assessing their pecuniary relationship with the company. The committee also recommended online proceedings. It said that all notices to companies should be issued online. This, the committee felt, will bring in transparency.

If e-proceedings begin, nobody from registrar of companies can take to task companies that have not been identified by the system automatically.