Sebi may crack down on corporate executive pay

Move to make board accountable for performance appraisal

The Securities and Exchange Board of India (Sebi) plans to bring guidelines to regulate executive compensation in listed firms.

Expressing concern over the way performance appraisal of top executives was done by the boards of these firms, Sebi Chairman U K Sinha said the regulator might ask firms to form “remuneration committees”, to be headed by independent directors. These panels would be on the lines of similar requirements mandated for bourses under the Stock Exchanges and Clearing Corporations (SECC) regulations notified by Sebi in 2012.

“Our long-term vision is that other corporate entities should be encouraged to follow the same norms,” he said in his lecture at an event organised by International Management Institute here on Tuesday.

SINHASPEAK

• Governance norms for stock exchanges to be expanded to all corporate entities 
• 50% members on boards to be independent directors 
• Remuneration panels, to be headed by independent directors, at corporate bodies 
• Variable pay to be ploughed back if profits are suffered 
• Level playing field for public and private firms

Sinha indicated, other norms in SECC regulations, like clawback of executives’ variable pay and the requirement of 50 per cent members on boards to be independent directors, would be extended to the broader corporate universe.

Explaining the context of the proposed moves, he said executive compensation had come into focus globally after the 2008 financial crisis. “A line of thinking is that the issue should be broadly divided into the financial and non-financial sectors. Since the financial sector firms are generally over-leveraged, the risk for bond holders is higher than that for equity holders.”

A case was being made out that employee stock option plans (Esops) should not be allowed in the financial sector, Sinha said.

Besides, Sebi wants companies to declare their agenda for annual general meetings and extraordinary general meetings on their websites and to the stock exchanges. The regulator is also looking at level playing field for private sector and public sector firms and stricter norms for selection of independent directors.