Corp governance: New norms for CEO pay, whistleblower policy soon

New Delhi: In a major overhaul of corporategovernance norms, Sebi will soon put in place stringent checksagainst unjustifiable CEO salaries at listed companies and askthem to adopt a whistle-blower policy to protect the employeesexposing any wrongdoings by the top management.

The capital market regulator would soon make necessarychanges in its framework for the Listing Agreement and otherregulations that every company needs to follow with regard totheir corporate governance practices after becoming a publiclylisted entity, a senior official said.

Sebi had sought comments from the general public andother stakeholders earlier this year for a major overhaul ofcorporate governance norms. Besides, the new Companies Act hasalso proposed various new measures in this regard.

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[caption id=“attachment_1127097” align=“alignleft” width=“380”]  The capital market regulator would soon make necessary changes in its framework for the Listing Agreement and other regulations that every company needs to follow with regard to their corporate governance practices after becoming a publicly listed entity, a senior official said.[/caption]

The necessary changes are being finalised after takinginto account the public suggestions, expert opinion and theCompanies Act, 2013 provisions, the official added.The other proposed measures include greater powers tominority shareholders, an orderly succession planning and

hefty penalties for non-compliance to model corporategovernance practices and related norms.

With regard to executive pay, Sebi will ask the companiesto provide a ratio of top management remuneration and themedian staff salary. Besides, the companies would have toexplain to their shareholders the relationship between theirtop management salaries and the performance of the company, asalso the rationale behind the salaries and pay hikes given tothe top executives.

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There have been many instances of CEOs and other topmanagers getting hefty salaries, despite inadequate financialand business gains for the companies. This problem has beenfound to be much more acute at companies having top executivesfrom their promoter families and the new rules could bestricter for them.

The regulator also plans to usher in new concept of’Corporate Governance Rating’ by independent agencies tomonitor the level of compliance by the listed companies andregular inspection by the Sebi and the stock exchanges.There is also a proposal to put in place a mechanism forgreater oversight by and on independent directors, while theminority shareholders would get greater powers in cases likemerger and acquisitions, business dealings with entitieslinked to promoters and top management, changes in the articleof association of a company, among other important matters.

With regard to CEO salaries, Sebi wants the companies tobe more responsible towards the interest of shareholders,although it does not intend to put any pay caps. Therefore,the regulator is instead focussing on improving the disclosureevels, so that the investors can take more informed

decisions.For strengthening a vigil mechanism among employeesagainst any wrongdoings by promoters and top executives, Sebiwants the companies to set up a board committee for framingand overseeing their whistle-blower policies.

PTI