what is managerial remuneration in Companies Act?

The remuneration payable to the Managing Director (MD)/ Whole-time Director (WTD)/Manager should be within the limits prescribed by Section 197 of the Companies Act, 2013 (“the Act”). There is no restriction on payment of remuneration to MD in a Private Company, however the restrictions on payment of remuneration to the MD are applicable on Unlisted Public Companies. The provisions related to payment of managerial remuneration in Unlisted Public Company are mentioned below.

1. Limit on Remuneration

The total managerial remuneration payable by a public company, to its Directors, including managing director and whole-time director, and its manager in any financial year should not be more than 11% of the net profits (Net Profits calculated as per Section 198 of the Act) of that company for that financial year.

Remuneration allowed to One MD/Whole-time Director (WTD)/Manager

5% of the Net Profits

Remuneration allowed to all MD/WTD/Manager

The remuneration payable to all MD/WTD/Manager taken together should not be more than 10% of the net profits.

Remuneration to Directors who are not MD/WTD

Case-1: When there is MD/WTD/Manager in Company

1% of the net profits

Case-2: When there is no MD/WTD/Manager in Company

3% of the net profits

2. Increase in Limit

The limit on remuneration may be increased in the following manner:

The company may increase the limit on payment of overall remuneration above 11% of the net profits general meeting.

The other limits on remuneration may be increase by a Special Resolution in General Meeting.

However, if the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the company should take the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor before obtaining the approval in the general meeting.

3. Other provisions related to remuneration

Remuneration for no profits or inadequate profits should follow Schedule V to the Act.

Director’s remuneration for professional services rendered in another capacity is excluded if they have the necessary qualifications.

Remuneration can be given as a fee for attending board or committee meetings, up to a maximum of 1 lakh per meeting.

Remuneration can be monthly, a percentage of net profits, or a combination of both.

Excess remuneration drawn by a director without approval must be refunded to the company within two years.

Recovery of refundable sums can be waived by special resolution within two years. However, prior approval from bank or public financial institution or non-convertible debenture holders or any other secured creditor is required in case of default.

Listed companies must disclose the remuneration ratio of each director to the median employee in the Board’s report.

MD/WTD receiving commissions from the company can still receive remuneration from holding or subsidiary companies, and this must be disclosed in the Board’s Report.

4. Deductions from Remuneration

The premium paid on the insurance as mentioned below to the Managerial Personnel should not be treated as part of the remuneration:

Insurance for MD/WTD/CEO/CFO or Company Secretary for indemnifying against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust.

However, the premium would be treated as part of remuneration when such person is proved guilty.

The other fees payable to Directors should not be included in the percentages mentioned above.

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