21.     Statutory Boards and Committees

21.1       This part deals with the remuneration of part-time chairpersons, members and secretaries of statutory boards and committees as well as for those appointed to serve on ad hoc Committees or Fact-Finding Committees, Courts of Investigation and Technical and other committees.

Corporate Governance and Duty of the Board

21.2       The Board of an organisation is primarily responsible for policy formulation and strategy while the day-to-day management rests with the chief executive or the executive chairman.  The Board of Directors directs and controls the corporation in a sound and profitable manner in line with corporate governance principles and practices. Good corporate governance involves proper stewardship, a responsibility placed explicitly on all those responsible for the goods and funds of others.  It imposes a duty to exercise due diligence, i.e. care, rigour and attention, in the management and disposal of all those assets for which each individual constituting the board is given responsibility.  As a result, good corporate governance is increasingly seen as the hallmark of successful organisations.

21.3       Moreover, the responsibilities of directors encompass the following:

Ø    Acquire basic knowledge and understanding of the business/activities of the organisation and its economic driving force

Ø    Ensure proper compliance with the statutory requirements of the organisation

Ø    Monitor the activities of executive management, their integrityand competency

Ø    Ensure the adequacy and effectiveness of financial and operational controls to safeguard the assets of the organisation and approve the financial reporting requirements

Use of Non-Executive Directors

21.4       As expatiated upon in our previous reports, it was common practice in the past for eminent personalities and other professionals of the country to serve on boards and committees on a voluntary basis, as is generally the practice abroad.  However, in the course of time, remuneration in the form of fees was introduced for these volunteers to meet certain expenses in relation to their attendance at boards and committees.  The quantum of the fees was not meant, and is still not meant, for a full compensation for the services rendered but a symbolic reward.  It is worth noting that even today there are still persons who continue to offer their services on a voluntary basis in a spirit of patriotism.

Remuneration of Non-Executive Directors

21.5       The fundamental considerations in the determination of the pecuniary reward for non-executive directors include provision of reasonable compensation for their time, commitment and contribution at board meetings while ensuring that such reward is not seen as compromising on their independence in judgement and action.

21.6       Reasonable compensation depends on the following factors:

(i)       the number of board meetings per year the non-executive director is required to attend;

(ii)       whether he or she also forms part of a board committee such as the audit committee or the remuneration committee which involves extra duties and an additional time commitment;

(iii)      the eminence of the director - whether he is sought after for particular wisdom and expertise;

(iv)     organisation size - research shows a fairly clear relationship between the size of non-executive directors' fees and the size of the organisation; and 

(v)     position - non-executive chairpersons are normally paid substantially more than ordinary non-executive directors.  This differential partly reflects the additional time involved and partly the additional responsibility and public exposure that goes with this role.

21.7       Maintaining objectivity and independence are critical to the effectiveness of non-executive directors. It is generally argued that if Directors become too dependent on their remuneration from an organisation on whose board they serve, they might not perform the independent role required of them by the relevant stakeholders.  For this reason, the provision of other perquisites, over the fees payable, are generally to be avoided.

Remuneration of Part-time Chairman

21.8       In the 2003 PRB Report, we recommended, in line with current international practice, a new formula for the remuneration of part-time chairman, linked with the salary of the Chief Executive, established through job evaluation.

21.9       On the basis of the new formula, the monthly fee payable to part-time chairpersons of statutory boards previously categorised in A, B and C are at the rate of 30% of the monthly basic salaries of their respective Chief Executives, subject to a maximum of Rs 15000. Whereas for those in category D, the fees payable to the part-time chairpersons are at the rate of Rs 1125 per sitting, subject to a maximum of Rs 4500 a month. In respect of statutory board with no Chief Executive, the monthly fee payable to the part-time chairperson, is established/reviewed by the Standing Committee on Boards and Committees. The formula used in determining the fees payable to a part-time chairperson is fair, reasonable and still valid.  Considering the responsibilities of the part-time chairperson, which are full-time in nature, as well as the pay increase granted in this Report, we are maintaining the rate at 30% of the pay of the Chief Executive.

Recommendation 1

21.10     We recommend that:

(a)       the monthly fees of part-time chairpersons of Statutory Boards and Committees, which  are currently linked to the salaries of their Chief Executives, should continue to be at the rate of 30% of the monthly basic salaries of their respective full-time Chief Executives, subject to a maximum of Rs 21000;

(b)       in respect of an organisation with no Chief Executive, the monthly fees of part-time chairpersons should be reviewed by the Standing Committee mentioned at paragraph 21.33, taking into consideration the following:

(i)         the importance and status of the institution;

(ii)        the nature and volume of work devolving on the board;

(iii)       the duties and level of responsibilities of the chairperson; and

(iv)       the frequency of meetings.

(c)       the fees payable to part-time chairpersons of Statutory Boards and Committees for which remuneration is on a sessional basis should be at the revised rate of Rs 1400 per sitting, subject to a maximum of Rs 5600 a month.

Actingship as Chairperson

21.11     Normally in the absence of a chairperson, the vice-chairperson or any other member chairs the board meetings, unless the law provides otherwise.

21.12     A vice-chairperson or any other member who presides over all board meetings held in a month in the absence of the substantive chairperson (while the latter is in the country) is paid an allowance equivalent to 40% of the monthly fees payable to the substantive chairperson. The said amount is deductible from the monthly fees of the substantive chairperson. Where the chairperson has been replaced by more than one person and for only part of the month, the amount is shared on a pro-rata basis.

21.13     However, when the substantive chairperson is absent from the country, the vice-chairperson or any other member who chairs the board meetings is entitled to the full allowance payable to the chairperson.  A substantive chairperson who absents himself during one calendar month is not eligible to any fees, except if he is on official mission for the Board.

Recommendation 2

21.14     We recommend that:

           (i)        a vice-chairperson or any other member who presides over all Board meetings held in a month in the absence of the chairperson (while the latter is in the country) should continue to be paid an allowance equivalent to 40% of the monthly fees payable to the substantive chairperson.  The said amount should be deductible from the monthly fees of the substantive chairperson.  Where the chairperson has been replaced by more than one person and for only part of the month, the amount should be shared on a pro-rata basis.

          (ii)        a vice-chairperson or any other member who chairs Board meetings when the substantive chairperson is absent from the country should continue to be entitled to the full allowance payable to the chairperson. A substantive chairperson who absents himself during one calendar month should not be eligible to any fees, except if he is on official mission for the Board.

Double Payment

21.15     It has been reported that there have been cases of abuse on the part of certain acting chairpersons who, while being entitled to the full allowance payable to the substantive chairperson when the latter is absent from the country, also claim payment for attendance as members during the same month as the current system allows them to do so. We are making appropriate recommendations, in this Report, to contain this type of abuse.

Recommendation 3

21.16     We recommend that a vice chairperson or any other member, who chairs Board meetings when the substantive chairperson is absent from the country and is paid the full allowance payable to the substantive chairperson, should not be eligible to payment for attendance as member during the same month.

Resignation of Chairperson

21.17     In case of resignation of a chairperson and pending the appointment of a new chairperson, the chairmanship is carried out by the vice-chairperson, if any, or by any other member designated by the Board.  The latter is entitled to the full allowance prescribed.

21.18     There are also instances when the chairmanship is carried out on a rotational basis with the agreement of the board members. In such cases, the full monthly allowance normally payable to the chairperson is proportionately apportioned among the acting chairpersons.

Recommendation 4

21.19     We recommend that, in case of resignation of a chairperson and pending the appointment of a new chairperson, the chairmanship should continue to be carried out by the vice-chairperson, if any, or by any other member designated by the board and the latter should be entitled to the full allowance prescribed.

21.20     We also recommend that, in case the chairmanship is carried out on a rotational basis with the agreement of the board members, the full monthly allowance normally payable to the chairperson should continue to be proportionately apportioned among the acting chairpersons.

Members of Boards

21.21     Members of statutory boards and committees including civil servants are being paid Rs 500 per sitting.  A member, other than the chairperson, who is called upon to chair a subcommittee of statutory boards and committees, is paid an additional sum of Rs 180 per sitting up to a maximum of Rs 720 monthly for the additional responsibility. Similarly, a member who sits in subcommittees is paid a fee of Rs 480 per sitting.

21.22     International experience has shown that, in certain jurisdictions, government employees are not paid board/committee fee unless the meetings are held outside normal office hours and this, with the specific approval of the appropriate authority.  ‘Normal office hours’ is interpreted to mean the usual hours during which the officer is required to attend his/her place of employment.  In other jurisdictions, public servants sitting on boards of corporate entities receive the same level of remuneration as other directors because they accept the same level of responsibility and personal liability.

21.23     Recognising the accountability and responsibility factors, we, too, are of the view that public servants sitting on boards and committees should continue to be remunerated at the same level as the other directors.  However, whenever practicable, meetings of statutory boards and committees should, as far as possible, be scheduled in such a manner so as not to impede the smooth running of organisations.

Recommendation 5

21.24     We recommend that members of Statutory Boards and Committees be paid a fee of Rs 625 per sitting.  A member other than the chairperson, who is called upon to chair subcommittees, should be paid an additional fee of Rs 215 per sitting, subject to a maximum of Rs 860 monthly.

21.25     A member who sits in subcommittees should be paid a fee of Rs 575 per sitting. 

21.26     We also recommend that, whenever practicable, meetings of Statutory Boards and Committees should, as far as possible, be scheduled outside normal office hours.

Secretary

21.27     Officers acting as secretary to statutory boards and committees are presently paid Rs 720 or Rs 360 per sitting based on the categorisation obtaining prior to the 2003 PRB Report. Officers, called upon to act as secretary to sub-committees, are equally remunerated on the same principle.

Recommendation 6

21.28     We recommend that the fees presently payable to officers acting

(a)   as Secretary to Statutory Boards and Committees; and

(b)   as Secretary to sub-committees
                     should be increased by 20%.

Travelling

21.29     Prior to the 1998 PRB Report, Non-Executive Board Directors travelling by car to attend board meetings were paid mileage at the approved rates.  Those travelling by bus were refunded bus fares in toto.  This system of refund of travelling expenses appeared to be administratively cumbersome as it involved, inter alia, a lot of paperwork and the exercise of control.  This element had, therefore, since the 1998 PRB Report been included in the fees payable to the Non-Executive Board Directors of Statutory Boards and Committees.

21.30     In the context of this review, representations have been received from different quarters for the re-introduction of the refund of travelling expenses on top of the prescribed fees to Non-Executive Directors of Boards and Committees on account of the successive increases in the price of petrol and the cost of travelling, in general.  We are, therefore, making appropriate recommendations to that end by way of the grant of commuted allowances to ensure that the new system does not give rise to unnecessary paperwork and the need for control.

Recommendation 7

21.31     We recommend that Chairmen and Members of the Statutory Boards and Committees travelling by car to and from the place of meeting should be paid a commuted travelling allowance of Rs 200 per sitting.  Those travelling by bus should be paid a commuted travelling allowance of Rs 50 per sitting.  These allowances should not be payable to non-executive directors who are beneficiaries of an official car or who do not have to travel exclusively to attend the meeting.

Standing Committee

21.32     With the new remuneration policy for chairpersons, members and secretaries of statutory boards and committees introduced in 2003 and maintained in this Report, the need for categorisation, therefore, does no longer arise. However, the Standing Committee needs to be maintained to deal with all new cases for the determination of the quantum of fees payable.

Recommendation 8

21.33     We recommend that the Standing Committee on Fees and Allowances  under the chairmanship of the Ministry of Civil Service and Administrative Reforms and comprising the Financial Secretary and the Director, Pay Research Bureau should be maintained to deal, inter alia,  with all new cases for the determination of fees payable.

Ad hocCommittees

21.34     The Standing Committee referred to at paragraph 21.33 also deals with requests for determination of allowances payable to chairpersons, members and secretaries appointed to sit on ad hoc committees, Fact-Finding Committees, Courts of Investigation, Technical and other committees.  In order to ensure uniformity in such cases, the Standing Committee adheres to certain approved criteria as guidelines.

Recommendation 9

21.35     We recommend that the Standing Committee should continue to be responsible for the determination of allowances payable to chairpersons, members, secretaries and other supporting staff of ad hoc committees in line with approved criteria, as guidelines.

Strategy Retreats

21.36     In the 2003 PRB Report, we laid stress on the need and made formal recommendation regarding the organisation of retreats/seminars for comprehensive discussions on corporate strategy at least once a year.

21.37     Retreats are becoming more and more vital for fostering communications, developing teamwork and team spirit, and also for experimenting new ideas, products, services and approaches.  Another common retreat objective is to develop a consensus about a specific plan or activity or approval of a strategic plan or direction for the entity. In reality, many retreats represent a mixture of purposes, which may vary from year to year as the organisation evolves and new issues appear. Above all, the retreat provides the opportunity for participants to focus on critical issues.

21.38     The relevance of such retreats assumes greater pertinence and importance in the wake of the general introduction of the new Programme Based Budgeting coupled with the drive to establish and maintain a Performance Culture in public sector organisations. The benefit of such retreats, if appropriately scheduled, would be undeniable.

Recommendation 10

21.39     We recommend that Boards of Parastatal and other Statutory Bodies should continue to schedule retreats for comprehensive discussions on corporate strategy and other important issues at least once a year or as appropriate.

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