<p>As companies begin planning for the new financial year, boards across India will reassess compensation for both independent and executive directors. It is a timely exercise. Regulations have tightened, liability has widened and investors increasingly expect evidence that directors justify the fees they receive. There is, sensibly, no single formula. But with richer disclosure now available, companies can move beyond the habitual “what did we pay last year?” and adopt a more analytical approach. Within broad statutory guardrails, practice still varies. Some large firms pay independent directors seven figure retainers, while others operate at the bare minimum. Executive remuneration ranges even more widely, reflecting India’s diversity from promoter led groups to professionally managed multinationals. What is clear, however, is the need for a principled framework that links pay to responsibility, time and value.</p><p>A strong starting point rests on four elements which include, skills, risk, time and value add. Boards now seek directors with specialised competencies such as digital systems, economic analysis and global markets, rather than simply distinguished names. Skills that help management avoid strategic errors or reduce reliance on consultants deserve a premium. Risk is more complicated. Directors today sign off on financials, evaluate related party transactions, approve capital allocation and oversee risk frameworks under rising scrutiny. In high compliance sectors such as banking, insurance, telecoms and pharmaceuticals, the consequences of governance failures are severe, justifying higher compensation. Time is the third variable. A board seat is no longer about attending four meetings a year. Committee responsibilities, pre-reads, informal consultations and crisis response add dozens of hours annually. Audit and risk committees in particular demand deep technical understanding and significant preparation, which compensation structures ought to recognise. The final element, comprising of value add, is the hardest to measure but easiest to recognise. A director who reframes a debate or challenges a flawed assumption at the right moment can materially influence a company’s direction. Size, stage and sector must also shape compensation. A large cap bank or a pharmaceutical firm with international operations bears greater regulatory and operational risk than a mid cap manufacturer with simpler processes.</p><p>Striking the right balance matters. Paying too little is poor governance. Under compensated independent directors often treat board roles as low priority engagements. They attend meetings but lack the incentive to invest the time needed to probe risks or review detailed materials. The opportunity cost for them is high; the return, low. At the other extreme, paying too much risks undermining independence. If fees resemble disguised salaries, directors may be perceived as beholden to management. Independence is not only a legal requirement but an expectation and excessive compensation blurs that line.</p><p>So what should boards do? First, replace instinct with evidence. Benchmark director compensation against peers in the same sector and market cap tier. Distinguish between promoter executives , professional executives and independent directors, since their contributions differ fundamentally. Second, link pay explicitly to responsibility. Committee chairs, especially audit, remuneration and risk, should receive meaningfully higher retainers than directors without committee roles. Third, ensure structures do not compromise independence. Finally, boards must recognise that compensation is not static. As regulation evolves and risk profiles change, remuneration frameworks must adapt. India now has a rich base of disclosures in annual reports and filings. A forthcoming analytical study by IMA examining data from 25,000 firms, will draw on this data to map board compensation across sectors, market cap tiers and roles. Used well, such benchmarks can help companies pay their directors neither too little nor too much.</p>
<p>As companies begin planning for the new financial year, boards across India will reassess compensation for both independent and executive directors. It is a timely exercise. Regulations have tightened, liability has widened and investors increasingly expect evidence that directors justify the fees they receive. There is, sensibly, no single formula. But with richer disclosure now available, companies can move beyond the habitual “what did we pay last year?” and adopt a more analytical approach. Within broad statutory guardrails, practice still varies. Some large firms pay independent directors seven figure retainers, while others operate at the bare minimum. Executive remuneration ranges even more widely, reflecting India’s diversity from promoter led groups to professionally managed multinationals. What is clear, however, is the need for a principled framework that links pay to responsibility, time and value.</p><p>A strong starting point rests on four elements which include, skills, risk, time and value add. Boards now seek directors with specialised competencies such as digital systems, economic analysis and global markets, rather than simply distinguished names. Skills that help management avoid strategic errors or reduce reliance on consultants deserve a premium. Risk is more complicated. Directors today sign off on financials, evaluate related party transactions, approve capital allocation and oversee risk frameworks under rising scrutiny. In high compliance sectors such as banking, insurance, telecoms and pharmaceuticals, the consequences of governance failures are severe, justifying higher compensation. Time is the third variable. A board seat is no longer about attending four meetings a year. Committee responsibilities, pre-reads, informal consultations and crisis response add dozens of hours annually. Audit and risk committees in particular demand deep technical understanding and significant preparation, which compensation structures ought to recognise. The final element, comprising of value add, is the hardest to measure but easiest to recognise. A director who reframes a debate or challenges a flawed assumption at the right moment can materially influence a company’s direction. Size, stage and sector must also shape compensation. A large cap bank or a pharmaceutical firm with international operations bears greater regulatory and operational risk than a mid cap manufacturer with simpler processes.</p><p>Striking the right balance matters. Paying too little is poor governance. Under compensated independent directors often treat board roles as low priority engagements. They attend meetings but lack the incentive to invest the time needed to probe risks or review detailed materials. The opportunity cost for them is high; the return, low. At the other extreme, paying too much risks undermining independence. If fees resemble disguised salaries, directors may be perceived as beholden to management. Independence is not only a legal requirement but an expectation and excessive compensation blurs that line.</p><p>So what should boards do? First, replace instinct with evidence. Benchmark director compensation against peers in the same sector and market cap tier. Distinguish between promoter executives , professional executives and independent directors, since their contributions differ fundamentally. Second, link pay explicitly to responsibility. Committee chairs, especially audit, remuneration and risk, should receive meaningfully higher retainers than directors without committee roles. Third, ensure structures do not compromise independence. Finally, boards must recognise that compensation is not static. As regulation evolves and risk profiles change, remuneration frameworks must adapt. India now has a rich base of disclosures in annual reports and filings. A forthcoming analytical study by IMA examining data from 25,000 firms, will draw on this data to map board compensation across sectors, market cap tiers and roles. Used well, such benchmarks can help companies pay their directors neither too little nor too much.</p>
