A parliamentary panel on the new Companies Bill has suggested that salaries of chief executives should be capped and the decision on amounts of managerial remunerations is best decided by shareholders.
The panel asked the Corporate Affairs Ministry to formulate 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.
The revised Companies Bill is expected to be tabled in Parliament in the winter session, or latest by the Budget session and is likely to be enacted by the end of this fiscal.
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