Business Today

Companies can now pay managers 'excess' salaries without government nod

The government has termed the move a step towards 'Minimum Government-Maximum Governance and providing Ease of Doing Business to the law-abiding corporates of this country'.

twitter-logo Dipak Mondal   New Delhi     Last Updated: September 14, 2018  | 21:27 IST
Companies can now pay managers 'excess' salaries without government nod

A public company can now pay to its managerial personnel the total remuneration in excess of 11 per cent of its profit without seeking an approval from the government. They can now do this by getting approval of shareholders through a special resolution.

The change has been brought about through a notification of an amendment of the law as recommended by the Companies Law Committee (CLC) in 2016. The cap on the overall remuneration of managerial personnel has been specified in the Companies Act, 2013. However, the earlier law had a provision under which companies could exceed the limit after getting an approval from the government.

Now, the same can be approved by shareholders through a special resolution, which requires approval from 75 per cent of the shareholders.

The government has termed the move a step towards 'Minimum Government-Maximum Governance and providing Ease of Doing Business to the law-abiding corporates of this country'.

The move is also seen as empowering common shareholders of the company.

However, in cases involving companies which have defaulted in payment of dues to any bank/financial institution or non-convertible debenture holder or any other secured creditor, prior approval of the lenders is required before placing the matter for consideration and approval in the General Meeting of the shareholders.

Similar changes have been effected in case of loss or inadequacy of profits. Salaries would be in accordance with the provisions of the law and no approval of the Central Government would be required for the same on a case to case basis.

The Schedule V of the Companies Act, 2013 lays down the conditions to be fulfilled by a company to pay managerial remuneration. It also specifies the limits in salaries of a company with no or inadequate profits.

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