Downturn more unkind to directors, shareholders

NEW DELHI: Shareholders and directors were hit harder by the economic downturn that affected corporate profits in the financial year ended March 2009, compared with employees who still received pay hikes during the period.

An ET study of 750 companies revealed that the directors, who comprise a mix of top executives who run the company and some independent members who are not on the rolls of the firm, took a 4% cut in aggregate remuneration as slowdown hit corporate profits. Total payout for the 750 companies by way of directors��� remuneration stood at Rs 1,440 crore for the year.

Profits that remained flat despite a 19% increase in net sales also resulted in shareholders getting paid the same dividend as the previous year. In contrast, employee salary bill rose 20% for the sample of companies in the study. Moreover, the big picture does not change even if we exclude the top three IT firms Infosys, TCS and Wipro, whose wage bill constitutes a high component of the total cost.



One reason why directors remuneration declined could be a component of their pay packet called ���commission���. This commission is paid out of corporate profits and many firms fix a percentage of overall profits to be paid as a reward to their directors.

As a result if profits suffer, the payout of commission also declines and if the company makes losses no commission is paid. But with India Inc reporting better profits in the first quarter ended June and the economy showing signs of a revival, directors could expect another year of multi-crore performance bonuses.