Govt relaxes managerial remuneration norms

The government has relaxed one of the rules of Companies Act 2013 doubling the limit on managerial remuneration for public companies without or inadequate profits in a particular financial year.

Relaxing the Schedule Five of the Companies Act, the government has increased the managerial remuneration limit from Rs 30 lakh to Rs 60 lakh for companies with effective capital of less than Rs 5 crore. This is the maximum salary a company with no profit or inadequate profit can  pay to its managers without taking government approval. For paying a higher salary, such companies would have to take approval from the government.

For companies with effective capital of Rs 5 crore or more but less than Rs 100 crore, the limit has been increased from Rs 42 lakh to Rs 84 lakh and for effective capital of Rs 100 crore or more but less than Rs 250 crore, the limit has been increased from Rs 60 lakh to Rs 120 lakh.

For companies with effective capital of Rs 250 crore or more, the new limit is Rs 120 lakh plus 0.01% of the effective capital above Rs 250 crore. Earlier, the limit was Rs 60 lakh plus 9.91% of excess effective capital over Rs 250 crore.

(Effective capital of a company includes paid-up capital of the company, money in the premium account, reserves and surpluses and long-term loans and deposits payable after one year.)

The salary cap is applicable for managing directors, whole-time directors and part-time directors. A public company is one which has a minimum paid-up capital of Rs 5 lakh or more.

The move is seen as giving more leg room to companies to decide their managerial salaries. "The question was being asked by companies that what value the government was adding to their decision-making when they go for approval of remuneration higher than the limit as laid down in the (Companies) Act. You need to pay salaries to people to run business and therefore, it makes sense to relax the salary cap," says Sandip Khetan, partner, Indian member firm of EY Global. Khetan says it is a move towards more ease of doing business.

It is to be mentioned here that the Companies Act does not allow public companies to pay its managing director and whole-time directors salaries that exceed 11% of its net profit.