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Remuneration of Directors

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Introduction

‘Remuneration’ means money or its equivalent given to an individual for services rendered by him which includes in the Income-tax Act, 1961.

Managerial remuneration in simple words is that the remuneration paid to managerial personals. Here, managerial personal means directors including director and whole-time director, and manager.

Remuneration payable under the Companies Act 2013

Total managerial remuneration payable by a public company, to its directors, whole-time director and its manager in respect of any financial year:

  • Companies that have one director or whole-time director provide 5% of the net profits of the company.
  • Companies that have more than one director or whole time director provide 10% of the net profits of the company.
  • When Overall Limit on Managerial Remuneration provide 11% of the net profits of the company.

Remuneration payable to directors who are neither directors nor whole-time directors

  • For directors who are neither managing director nor whole-time directors get 1% of the net profits of the company if there is a managing director or whole time director.
  • If there is a director who is neither a Managing director nor whole time director get 3% of the net profits of the company if there is no managing director/whole time director.

Now a public company pays its managerial personnel remuneration in more than of 11% without prior approval of the Central Government. A special resolution approved by the shareholders is going to be sufficient.

In case a corporation has defaulted in paying its dues or did not pay its dues, permission from the lenders are going to be necessary.

When the corporate has inadequate profits/no profits: just in case a corporation has inadequate profits/no profits in any financial year, no amount shall be payable by way of remuneration except if following provisions are followed.

When the effective capital is:

Limits of annually remuneration

Negative or less than 5 Crores

60 Lakhs

5 crores and above but less than 100 Crores

84 Lakhs

100 Crores and above but less than 250 Crores

120 Lakhs

250 Crores and above

120 Lakhs plus 0.01% of the effective capital in excess of 250 Crores

Some important points:

Remuneration determination: The remuneration paid to the director shall be determined by following points:

  • The articles of the company
  • A resolution
  • In case of special resolution if articles require it to be passed in the general meeting.

Fees to directors: The directors may receive fees for attending meetings and such fees cannot exceed the limits prescribed. Different fees for different classes of companies may be as prescribed. The fees can be paid:

  • Monthly
  • As a Specified Percentage of the Net Profits annually
  • Partly by method (a) and partly by method(b)

Remuneration of independent directors: An Independent director shall be entitled to sitting fees, reimbursement for participation in meetings, and profit related commission as approved by Board. However, he shall not be entitled to ESOP.

Excess Remuneration to be refunded: If any director receives any remuneration in excess of the provisions of law, the same shall be refunded to the company or kept in trust for the company.

Disclosure by a listed company: Every listed company shall disclose the ratio of the remuneration paid and the median employee’s remuneration along with other prescribed details.

Insurance: When the company ensures its personnel by providing protection against any act done by them due to negligence, default, misfeasance, breach of duty, breach of trust, such the premium paid for this insurance shall not be treated as part of remuneration except if the director is proved guilty.

Commission: Any managing director/whole-time director receiving commission from the company may also receive remuneration or commission from the holding or subsidiary of such a company provided the same is disclosed in the board’s report

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Author
Vipan Singh
Vipan is known for his passion for diversity and his work with corpseed. In his spare time, he is involved with numerous charitable activities and considers his greatest achievement to be the fact that he helps Startups and Entrepreneurs to scale up