The Securities and Exchange Board of India (Sebi) had yesterday said that they planned to regulate executive compensation in listed firms. However, industry players said that this move is uncalled for, at a time when industry is grappling with other issues.
Sebi chairman UK Sinha had said that the regulator may ask the firms to form a ‘remuneration committee’ headed by an independent director. Further, he has indicated that a case was being made for disallowing employment stock option plans (Esops) in the financial sector. He had also mentioned that variable pay would be ploughed back if profits suffer.
Variable pay for executives is usually linked to company's profits. But, during tough market conditions, instead of doing away with variable pay, companies decide to postpone it by two to three years. This variable pay is given after the stipulated time period to the executives, hence not compromising with the cash component of the executive.
Companies, however, are of the view that this would be difficult to implement such regulations across companies. "Issues like variable pay and independent directors have already been addressed by the proposed Companies Bill, which is on the anvil. Though there is nothing wrong with what Sebi has said, this move is unwarranted now because corporates would anyway be following the rules when the bill gets passed," said the human resource director of a Mumbai-based conglomerate.
Another board member and compensation practice head of a consumer goods firm opined that executive pay was already being regulated by the Ministry of Corporate Affairs and the recent comments by Sebi on the same bring about a disconnect between the two.
Executive recruitment firms explained that in certain cases, executive pay may be difficult to govern. Sangeeta Lala, VP, Team Lease informed that the size of the company needs to be paid attention to. She further added that since remuneration involves both cash and kind, it would be difficult to implement the proposed guidelines across the board. "Finding the basis of standardisation will be difficult. Moreover, corporate honchos would also need to agree to it," said Lala.
Industry players, however, agreed that there was wide discrepancy in the executive compensation model across companies and there was some regulation needed on the same. Anandorup Ghose, Head of Executive Compensation, Aon Hewitt also admitted that there is a governance issue among companies in terms of executive pay.