Salaries of chief executives should be capped and shareholders should have a say in managerial remunerations, a parliamentary panel on the new Companies Bill has suggested.
It has asked the Corporate Affairs Ministry to develop a "rational formula" for managerial remunerations.
"The committee are of the view that an overall outer ceiling on managerial remuneration may be prescribed," said the Parliamentary Standing Committee on Finance, which last week presented its report on Companies Bill 2009 in the Lok Sabha.
"The Ministry may evolve a rational formula for this purpose...The remuneration payable within this overall ceiling may be decided by the remuneration committee of board or shareholders as already proposed in the Bill," it added.
Currently, according to section 198 of the Companies Act 1956, total remuneration paid to managerial personnel cannot be more than 11 per cent of net profit, while an individual manager's compensation is capped at 5 per cent of net profit.
If a company wishes to break the ceiling, it requires a go ahead from the Corporate Affairs Ministry.
Besides, in case a company fails to garner profit or the profit is not adequate, it requires the Central Government's approval to dole out salaries.
The panel has further suggested that in the event of established fraud or fudging of profits by the company, remuneration paid to the key managerial personnel may be recovered.
The Committee's report has came after almost eight months of deliberation. Corporate Affairs Minister Salman Khurshid had tabled the new Companies Bill in Parliament in August last year.
Responding to the suggestions on this provision in the Companies Bill 2009, the Ministry has favoured an "umbrella limit (similar to limits depending on net profits of the company as is provided in existing section 198 of the Act) for remuneration".
The revised Companies Bill, which seeks to replace the half-a-century old Act, is expected to be tabled in Parliament in the winter session, or latest by the Budget session, according to Khurshid. He has exuded confidence that the new Act would be enacted by the end of this fiscal.