Legal framework on directors remuneration in
India
Companies Act
• Remuneration of directors and Limits (not to exceed 11% of net profits)
• Disclosure on remuneration of directors
• Permission of Central Govt in some cases
Clause 49
constitution of Remuneration Committee (non mandatory)
All remuneration paid to non-executive directors shall require previous approval of
shareholders.
Shareholders’ resolution shall specify the limits for the maximum number of stock
options that can be granted to non-executive directors
Every listed company has to lay down procedures to inform Board members about
the risk assessment and minimization procedures
Legal framework on directors remuneration in
India (contd.)
Voluntary Guidelines by MCA- December 2009
•
remuneration must be reasonable and sufficient to attract, retain and motivate
directors of the quality required
•
Remuneration packages should involve a balance between fixed and incentive pay
•
The Directors should be given substantial time to study the data and contribute
effectively to Board discussions.
•
•
Annual Report to contain performance evaluation of the Board
Nomination Committee for proposing NEDs.
Companies Bill
• Proposals to remove cap on directors remuneration
• Constitution of Remuneration Committee
Issues
• Organization to develop its own structure of remuneration based on
nature of its business?
• Remuneration to be guided by general principles or capped?
• Should fixing of remuneration be left to be determined by shareholders
only?