Government approval no longer required to pay Indian execs top dollar Government approval no longer required to pay Indian execs top dollar

Government approval no longer required to pay Indian execs top dollar
05 Oct 2018

Listed public companies in India will no longer require government approval to pay their top executives in excess of 11% of net profit.

The Companies Act 2013 has traditionally placed certain limits on the salaries paid to top managers of public companies. These limits are calculated against the organisation’s net profit.

For non-executive directors, the cap is 1%, which can rise to 3% subject to certain conditions. For full-time directors and managing directors, total pay may only amount to up to 10% of net profits, making the total remuneration limit 11%.

Until now, organisations wanting to pay salaries to their executives that are in excess of the prescribed limits have been required to seek government approval. But amendments to the Act now mean that public companies will only need sanction from their shareholders, by way of a 75% majority vote. 

If the firm has previously defaulted on its dues to any bank, financial institution or non-convertible debenture holders though, it will need to obtain authorisation from the lender concerned. 

Changes have also been made to Schedule V of the Act, according to Dezan Shira’s India Briefing. Companies must now file MR-2 e-forms only when appointing managers. In the past, it was necessary to submit the form to the government when both appointing and making decisions around remuneration.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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Listed public companies in India will no longer require government approval to pay their top executives in excess of 11% of net profit.

The Companies Act 2013 has traditionally placed certain limits on the salaries paid to top managers of public companies. These limits are calculated against the organisation’s net profit.

For non-executive directors, the cap is 1%, which can rise to 3% subject to certain conditions. For full-time directors and managing directors, total pay may only amount to up to 10% of net profits, making the total remuneration limit 11%.

Until now, organisations wanting to pay salaries to their executives that are in excess of the prescribed limits have been required to seek government approval. But amendments to the Act now mean that public companies will only need sanction from their shareholders, by way of a 75% majority vote. 

If the firm has previously defaulted on its dues to any bank, financial institution or non-convertible debenture holders though, it will need to obtain authorisation from the lender concerned. 

Changes have also been made to Schedule V of the Act, according to Dezan Shira’s India Briefing. Companies must now file MR-2 e-forms only when appointing managers. In the past, it was necessary to submit the form to the government when both appointing and making decisions around remuneration.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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