Guidelines for Managerial Remuneration, Quorum for different Meetings

Managerial remuneration refers to the payment made to the managerial personnel of a company, which includes the directors, managing directors, and key managerial personnel. The Companies Act, 2013 provides guidelines for the payment of managerial remuneration, which are aimed at ensuring that the payment is reasonable and in line with the performance of the company. In this article, we will discuss the guidelines for managerial remuneration in detail.

Maximum Remuneration

As per the Companies Act, the maximum remuneration payable to a managing director or a whole-time director or a manager shall not exceed 11% of the net profits of the company in a financial year. If the company has more than one managing director or whole-time director or manager, the maximum remuneration payable to all of them together shall not exceed 11% of the net profits of the company. The above limits are subject to the approval of the shareholders and the Central Government.

Remuneration for Non-Executive Directors

The Companies Act provides that the non-executive directors shall be paid a sitting fee for attending the board and committee meetings. The amount of sitting fee shall be such as may be approved by the Board of Directors. However, the total sitting fee payable to all non-executive directors in a financial year shall not exceed 1% of the net profits of the company.

Remuneration for Independent Directors

The Companies Act provides that the independent directors shall be paid such fees as may be approved by the Board of Directors. However, the amount of remuneration paid to the independent directors shall not exceed the following limits:

• 1,00,000/- per meeting of the Board or its committee attended by the independent director.
• 10,00,000/- per annum, for attending the meetings of the Board and its committees.

Remuneration for Key Managerial Personnel

The Companies Act provides that the remuneration payable to the key managerial personnel (KMP) shall be in accordance with the provisions of Section 197 of the Act. The KMP includes the CEO, CFO, Company Secretary, and any other officer who is in whole-time employment of the company and designated as KMP by the Board of Directors.

The remuneration payable to the KMP shall not exceed the following limits:

• In case the company has a managing director or whole-time director or manager, the total remuneration shall not exceed 5% of the net profits of the company.
• In case the company does not have a managing director or whole-time director or manager, the total remuneration shall not exceed 10% of the net profits of the company.
• If the KMP is not a director of the company, the total remuneration payable to all KMPs shall not exceed 10% of the net profits of the company.

Disclosures

The Companies Act provides that the company shall disclose the following details in its annual report:

• The ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year.
• The percentage increase in remuneration of each director, CFO, CEO, and Company Secretary for the financial year.
• The percentage increase in the median remuneration of employees in the financial year.
• The number of permanent employees on the rolls of the company.
• The explanation on the relationship between average increase in remuneration and company performance.

Approval of Shareholders

The Companies Act provides that the payment of managerial remuneration shall be subject to the approval of the shareholders. The company shall obtain the approval of the shareholders by passing a special resolution in a general meeting.

Approval of Central Government

The Companies Act provides that the payment of managerial remuneration beyond the prescribed limits shall require the approval of the Central Government. The company shall file an application with the Central Government in Form No. MR-2 along with the following documents:

• A copy of the Board resolution passed in this regard.
• A copy of the special resolution passed by the shareholders.
• A statement showing the name and designation of the employees in receipt of the remuneration.
• A statement showing the comparative remuneration paid to the employees of the company.
• A statement showing the financial performance of the company.

The Central Government may approve the payment of managerial remuneration beyond the prescribed limits subject to certain conditions.

Performance Evaluation

The Companies Act provides that the Board of Directors shall carry out a performance evaluation of every director, including independent directors, at least once a year. The performance evaluation shall be based on the criteria such as the contribution of the director to the Board and committee meetings, strategic decisions taken by the Board, etc.

The performance evaluation of the independent directors shall be done by the entire Board of Directors, excluding the director being evaluated.

Remuneration Committee

The Companies Act provides that the Board of Directors of every listed company and every other public company having a paid-up share capital of Rs. 10 crores or more shall constitute a Remuneration Committee. The Remuneration Committee shall consist of at least three directors, out of which not less than one-half shall be independent directors.

The Remuneration Committee shall:

• Formulate the policy on the remuneration of directors, KMPs, and other employees.
• Recommend to the Board the remuneration payable to the directors, KMPs, and other employees.
• Devise a policy on the performance evaluation of the Board, its committees, and individual directors.

Quorum for Different Meetings

Quorum is the minimum number of members required to be present at a meeting in order for it to be valid and for the proceedings to be conducted. The quorum for different types of meetings are as follows:

Annual General Meeting (AGM)

As per Section 103 of the Companies Act, 2013, the quorum for an AGM of a public company or a private company which is a subsidiary of a public company shall be:

• Five members personally present, if the total number of members as on the date of the meeting is not more than 1,000.
• Fifteen members personally present, if the total number of members as on the date of the meeting is more than 1,000 but up to 5,000.
• Thirty members personally present, if the total number of members as on the date of the meeting is more than 5,000.

In the case of a private company which is not a subsidiary of a public company, the quorum for the AGM shall be two members personally present.

Extraordinary General Meeting (EGM)

As per Section 103 of the Companies Act, 2013, the quorum for an EGM of a public company or a private company which is a subsidiary of a public company shall be:

• Five members personally present, if the total number of members as on the date of the meeting is not more than 1,000.
• Fifteen members personally present, if the total number of members as on the date of the meeting is more than 1,000 but up to 5,000.
• Thirty members personally present, if the total number of members as on the date of the meeting is more than 5,000.

In the case of a private company which is not a subsidiary of a public company, the quorum for the EGM shall be two members personally present.

Board Meeting

As per Section 174 of the Companies Act, 2013, the quorum for a Board Meeting shall be one-third of the total strength of the Board or two directors, whichever is higher. However, in the case of a One Person Company (OPC), the quorum shall be one director.

Committee Meeting

As per the provisions of the Companies Act, 2013, the quorum for a committee meeting shall be as specified in the Articles of Association of the company or as determined by the committee itself. In the absence of any such provision, the quorum shall be as determined by the Board of Directors.