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Legal framework on directors remuneration in India

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)

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Legal framework on directors remuneration in India

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  1. 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

  2. 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

  3. 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?

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