Nomination and Remuneration Committee (NRC) is one of the most important committees of the Board. It is expected to perform a number of vital functions relating to both appointment and remuneration of the Directors and the management. However, a number of NRCs are reportedly underperforming on account of a variety of reasons. These include –

• Composition of the NRC – NRC performs important functions such as those relating to appointment, remuneration and succession planning. The composition of the committee should be strong, and should comprise members who are unafraid to express their views on sensitive matters.
• Presence of Chair of the Board – Law and regulations permit the Chair of the Board to be a member of the committee. While some feel that this is a welcome move since it gives an opportunity for the Chair of the board to express his/her views on important matters, others feel that this could result in interference from the chair of the board.
• Newer human capital related issues post Covid – Post Covid, companies have had to grapple with newer human capital issues like work from office strategies, moonlighting etc. All these pose a challenge to NRCs since traditionally they have not had to deal with such issues.
• Diversity- There is increasing focus on diversity, not relating to gender, both in boardrooms and in the workforce. NRC has to set the path for this. This is not always easy due to cultural and mindset issues.
• Not playing a constructive role in selection of Directors – The expectation, that is, NRCs should understand the missing competencies on the Board, and find potential Directors who possesses the competence. However, in reality, very few NRCs follow this process, with a number of them agreeing to the names that are given to them by the Chair or the management.
• Inadequate say in deciding KPIs or compensation of Key Managerial Personnel and Senior Management Personnel – There is increasing focus on the compensation of top management by all stakeholders. NRCs of most companies have been found wanting in defending the high packages that they recommend for their executives, as also failure to link remuneration to performance.
• Compensation of Directors – Very few NRCs discuss and decide the profit linked commission paid to Directors on an objective formula. A number of companies continue to use attendance, and pay the same amount to all.
• Succession planning – Most NRCs have not played a constructive role in succession planning, both for Directors and for top management personnel. The result is vacancies, extensions, or suboptimal candidates finding their way to the seat.
• Agenda and agenda notes – Unless a proper agenda, along with agenda notes, complete in all respects, is sent to the NRC in advance, the deliberations cannot be meaningful. Tabled items, as is the case in a number of companies, prevents meaningful discussions.
• Number of meetings – While law and regulations mandate a minimum of 1 meeting in a year for NRC, the committee cannot meaningfully discharge its role in one meeting. Very few companies have moved towards convening quarterly meetings of the NRC.