Role
|
Name
|
Affiliation
|
Principal Investigator
|
Dr.Gyanendra Kumar sahu
|
Asst.Professor Utkal University
|
Content Reviewer
|
Dr.Gyanendra Kumar sahu
|
Asst.Professor Utkal University
|
Description of Module
Items
|
Description of Module
|
Subject Name
|
Law
|
Paper Name
|
Corporate Finance
|
Module Name /Title
|
Managerial Remuneration
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Module No.
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XII
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Description of Module
Managerial Remuneration
Introduction
The executive management of a company is responsible for the day
to day management of a company. The companies Act, 2013 has used the term key
management personnel to define the executive management. The key management
personnel are the point of first contact between the company and its
stakeholders. While the Board of Directors are responsible for providing the
oversight, it is the key management personnel who are responsible for not just
laying down
the strategies as well as its implementation. Chapter XIII of
the Companies Act, 2013 read with Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 deal with the legal and procedural aspects of
appointment of Key Managerial Personnel including Managing Director, Whole-time
Director or Manager, managerial remuneration, secretarial audit etc.
Key Managerial Personnel
The Companies Act, 2013 has for the first time recognized the
concept of Key Managerial Personnel. As per section 2(51) “key managerial
personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed.
MANAGERIAL REMUNERATION
Just as profits drive business, incentives drive the managers of
business. Not surprisingly then, in a fiercely competitive corporate
environment, managerial remuneration is an important piece in the management
puzzle. While it is important to incentivize the workforce performing the
challenging role of managing companies, it is equally important not to go
overboard with the perks and the pay. In India, to keep a check on unnecessary
profit squandering by companies and, at the same time, to ensure adequate and
reasonable compensation to managerial personnel, the law intervenes to do the
balancing act.
Remuneration to Managerial Personnel
Section 197 of the Companies Act, 2013 prescribed the maximum
ceiling for payment of managerial remuneration by a public company to its
managing director whole-time director and manager which shall not exceed 11% of
the net profit of the company in that financial year
computed in accordance with section 198 except that the
remuneration of the directors shall not be deducted from the gross profits.
Further, the company in general meeting may, with the approval of
the Central Government, authorise the payment of remuneration exceeding 11% of
the net profits of the company.
The remuneration payble to any one managing director or wholetime
director or manager shall not exceed 5% of the net profits of the company and
if there are more than one such director remuneration
shall not exceed 10% of the net profits to all such directors
and manager taken together.
Except with the approval of the company in general meeting, the
remuneration payable to directors who are neither managing directors nor
whole-time directors shall not exceed,—
— 1% of the net profits of the company, if there is a managing
or whole-time director or manager;
— 3% of the net profits in any other case.
Remunertion
by a Company having no Profit or Inadequate Profit
If,
in any financial year, a company has no profits or its profits are inadequate,
the company shall not pay to its directors, including managing or whole time
director or manager, any remuneration
exclusive
of any fees payable to directors except in accordance with the provisions of
Schedule V and if it is not able to comply with Schedule V, with the previous
approval of the Central Government.
Sitting
Fees to Directors for Attending the Meetings
[Section 197(5)]
The
Central Government through rules prescribed that the amount of sitting fees
payable to a director for attending meetings of the Board or committees thereof
may be such as may be decided by the Board of directors or the Remuneration
Committee thereof which shall not exceed the sum of rupees 1 lakh per meeting
of the Board or committee thereof.
Monthly
Remuneration to Director or Manager
A
director or manager may be paid remuneration either by way of a monthly payment
or at a specified percentage of the net profits of the company or partly by one
way and partly by the
other.
[Section 197 (6)]
Remuneration
Drawn in Excess of Prescribed Limit
If
any director draws or receives, directly or indirectly, by way of remuneration
any such sums in excess of the limit prescribed or without the prior sanction
of the Central Government, where it is required, he shall refund such sums to
the company and until such sum is refunded, hold it in trust for the company.
[Section 197(9)]
Insurance
Premium as Part of Remuneration
Where
any insurance is taken by a company on behalf of its managing director,
whole-time director, manager, Chief Executive Officer, Chief Financial Officer
or Company Secretary for indemnifying any of them against any liability in
respect of any negligence, default, misfeasance, breach of duty or breach of
trust for which they may be guilty in relation to the company, the premium paid
on such insurance shall not be treated as part of the remuneration payable to
any such personnel.
However,
if such person is proved to be guilty, the premium paid on such insurance shall
be treated as part of the remuneration.
[Section
197(13)]
Managerial
Remuneration under Schedule V
Section
II : Remuneration by Companies having no profits or inadequate
profits without Central Governement approval
(A):
Where
the effective capital is Limit of yearly remuneration
payable
shall not exceed (Rs)
Negative
or less than 5 Crore 30 Lakhs
5
Crore and above but less 42 Lakhs
than
100 Crore
100
Crore and above but 60 Lakhs
less
than 250 Crore
250
Crore and above 60 Lakhs plus 0.01% of the
effective
capital in excess of
Rs.
250 Crore
