Enhancing Shareholders’ Say on Executive Compensation in India – A Regulatory Roadmap

While the Covid-19 pandemic had a detrimental impact on the revenues and profits for a majority of Indian companies, the remuneration of directors increased steadily. In recent times, the Indian corporate space has witnessed unprecedented shareholder activism thwarting the proposed pay increases for the directors in companies like Hero MotoCorp, Eicher Motors, and Balaji Telefilms. A fresh debate has erupted on issues like excessive executive remunerations, not based on performance, and the minority shareholders lacking an adequate say in such matters. In this paper, an attempt has been made to undertake a thorough study of the evolution of the executive compensation mechanism in Indian companies, the existing legal and regulatory regime for executive remuneration, and the ‘say on pay’ available to the shareholders to identify the gaps that exist. A detailed analysis of the roles played by the nomination and remuneration committees, independent directors, proxy advisory firms, and institutional investors has also been undertaken. It also explores the comparative status of shareholders’ involvement in compensation matters in companies with dispersed shareholding patterns as found in the United States and the United Kingdom, vis-à-vis those with concentrated shareholding which abound in India. Further, certain anomalies existing in the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 have been highlighted by analysing a few recent Indian case studies on executive pay. The paper is concluded by making recommendations for enhancing shareholders’ say on executive compensation matters in Indian companies.