Managerial Remuneration

These restrictions are enumerated

1. Maximum Limit

According to Sec. 198 of the Companies act, the total managerial remuneration payable by a public company or a private company—which is subsidiary of a public company—to its directors and its managers in respect of a financial year computed in the manner laid down in Sections 349, 350 and 351— except that the remuneration of the directors shall not be deducted from the gross profit.

Explanation

‘Remuneration’ includes (as per Sections 309, 311, 348 and 387):

(a) Any expenditure incurred by the company in providing any rent-free accommodation or any other benefit or amenity in respect of accommodation free of charge, to any of the persons aforesaid.

(b) Any expenditure incurred by the company in providing any other benefit or amenity free of charge or at a concessional rate to any of the persons aforesaid.

(c) Any expenditure incurred by the company in respect of any obligation or service, which, but for such expenditure by the company, would have been incurred by any of the persons aforesaid;

(d) Any expenditure incurred by the company to effect any insurance on the life of, or to provide any pension, annuity or gratuity for any of the person aforesaid or his spouse or child.

2. Minimum Limit

According to Sec. 198 (Subsection 4) of the Companies (Amendment) Act, 1988—subject to the provisions of Sec. 269 (Schedule XIII)—a company shall not pay to its Directors (including any managing or whole time Director or manager) by way of remuneration any sum exclusive of any fees payable to Directors under Sec. 309 (2) except with the previous approval of the Central Government, if the company has inadequate profits or no profits in any financial year. This is subject to the of Sec. 209 (which deals with appointment of managing or whole time Director or manager) read with Schedule XHL

Remuneration to Directors

The remuneration to Directors is governed by Sec. 309 of the Companies Act, which is to be determined by – the Articles or by the resolution (special resolution if the articles so require).

Fees may be payable by the articles for attendance of the meeting of the board or committee subject to:

(a) A whole-time or managing director may be paid remuneration by way of monthly pay and/or specified percentage of net profit of the company (not exceeding 5% where there is only one such director, and not exceeding 10% in all where there are more than one whole-time director).

(b) A part-time director (i.e., not whole-time or managing director) may be remunerated either by way of monthly, quarterly or annually (with the approval of the Central Government or by way of commission (if the company by special resolution authorizes) not exceeding 1% for all such Directors, Secretaries, Treasurers or Managers and not exceeding 3% for all such Directors in other cases, or at higher percentage with the approval of the Central Government.

(c) Any whole-time or managing director shall not be entitled to receive any commission from any subsidiary of such company.

(d) The special resolution shall remain in force for a maximum period of 5 years. It may, however, be renewed, from time to time, by a special resolution for further periods of 5 years but no renewal can be effected earlier than 1 year from the date on which it is to come into force.

(e) A Director may be paid fees for attending each meeting of the Board or a committee thereof attended by him.

(f) If any Director receives any sum in excess of remuneration due to him, he shall keep the excess amount in trust for the company and shall refund it to the company. The company, however, cannot waive the recovery of any such sum.

(g) The above rules shall not apply to a private company unless it is a subsidiary of a public company.

(h) Prohibition of tax-free payment. A company shall not pay any officer or employee remuneration free of tax (Sec. 200).

(i) The net profit for the purpose of Directors’ remuneration shall be computed as per prescribed manner laid down in Sections 349 and 350 without deducting the Directors’ remuneration from the gross profit.