From Bengaluru to Boston, both curiosity and critique have surrounded the pay of board directors. Most conversations fixate on ‘how much’ board members earn, but this overlooks the deeper evolution in ‘how’ they are paid and why. The restructuring of board compensation reveals more than what static median figures ever could.
The compensation levels vary widely, depending on company size, structure and industry. Transformation depends on the structure, design and philosophy of remuneration. A 2024 research by Diligent pegged board pay in the US in the $10,000-200,000 range. The figures in India are in the Rs5 lakh-2 crore range, according to the Institute of Directors.
Board compensation used to look like a patchwork quilt; stitched together with per-meeting fees, travel allowances, annual retainers and committee premiums. Today, most companies in finance & IT are consolidating cash-based payments into a single annual retainer. This trend simplifies administration and avoids ambiguity over what qualifies as a ‘meeting’. The rising complexity of committee work is now factored into higher retainers. SEBI’s governance norms have an impact on the compensation calculus in India for audit and CSR committee chairs.
In contrast, equity-based compensation has overtaken cash across the world. In the US, it constitutes 50-60 per cent of total remuneration. India isn’t quite there yet, but equity is increasingly favoured in start-ups and high-growth sectors, where liquidity is scarce but future value is rich. Some Unicorns like Zomato are extending ESOPs and RSUs to independent directors, although SEBI regulations prohibit stock options for them in listed companies.
But, in India, such challenges have always led to innovations and, in this case, it led to phantom stocks and performance-based bonuses. Vested full-value shares are becoming the global norm. These structures reward consistency, leadership and long-term vision.
Equity-linked compensation is as much about optics as it is about pay-outs. Close to 90 per cent of the Fortune 100 companies have now mandated to have directors hold stock worth at least two-three times their annual cash retainer. There is no formal rule in India as yet, but institutional investors and proxy firms are pushing for such reforms.
Many Indian companies have now informally embedded ownership expectations into governance codes. This ensures that directors have ‘skin in the game’, to ensure accountability and long-term alignment with shareholders.
Private and family-owned firms, which are more common in India, bring their own finer aspects. In such firms, dilution is sacrilegious and not encouraged at all. Phantom stock – cash incentives tied to notional valuations – offers a solution for such entities: This eliminates equity transfer without curtailing performance-based rewarding to directors.
Family-owned companies are paranoid about losing control and resist professionals taking over sections of strategy and vision. In such firms, promoters and friends dominate boardrooms and so phantom equity and profit-linked bonuses are finding momentum. These models align with transformation goals without undermining promoter influence.
Perhaps, the most transformative trend is external scrutiny. We see that board pay is now under the lens of litigators, activists and the media. India too is witnessing this shift. SEBI’s new norms on related-party transactions and stricter disclosures have intensified transparency expectations.
The 2023 proxy season in India saw notable shareholder revolts against board re-appointments at companies, such as Eicher Motors and Zee Entertainment. Questions weren’t only about independence but also about performance and remuneration. Pay now must prove its merit through alignment, not just benchmarking.
After years of flux, board compensation design may be nearing a steady state. We believe that core levers like annual retainers, equity components, and ownership norms are now fairly standardised. No one wants to ‘upset the applecart’, especially in today’s hyper-scrutinising environment.
India Inc appears to be heading in the same direction. As board diversity, ESG accountability and financial oversight become governance imperatives, a stable pay framework is emerging. Compensation committees are now tasked with balancing performance rewards with ethical optics, buttressed by defensible policy.
Board pay has outgrown its old parameters. It’s no longer just a pay-check, but a governance instrument, a performance barometer and a stakeholder signal. The most enlightened boards are no longer asking ‘how much’, but ‘how well’ their compensation structures drive value.
As media and analyst scrutiny grows and trust has to be earned transaction by transaction, director compensation must reflect both worth and wisdom. The boardroom chair is not just ceremonial, but fiduciary, strategic and symbolic. And the compensation behind it must be no less purposeful.