Remuneration and selection committee in public company

This query is : Resolved

Guest

Guest (Querist)

08 December 2011
There is a public limited company (paid up capital Rs. 25 crore) in which 10 directors are there. Out of which one is Managing Director and one is Chairman. Now we want to give remuneration of Rs. 5.00 Lacs per month each to both MD and Chairman which we can comfortably give as per schedule XIII. To other 8 directors all are paid salary in the range of Rs. 50000 to 100000 per month.
In short all our 10 directors are paid Directors remuneration. Company is planning to get listed with stock exchange.

Now my queries are :

1. What will be the constitution of remuneration committee. I do not have any independent director in the company. Can a director who is paid remuneration be appointed as independent director.

2. Is constitution of Selection committee necessary / mandatory? If so, under which section or provision?

3. Can MD or chairman (in my case they are paid salary of Rs. 5.00 Lacs p.m.) be designated as non executive director? Can a director who is paid salary be treated as non executive director?

4. How much remuneration I can pay to all the directors under the companies act provisions section 198, 349, 350.

5. For paying remuneration for the year 2011-2012 we have to consider 11% of net profits of 2010-2011 or 2011-2012.

Pls elaborate and clarify.

I convey my thanks to Esteemed learned experts in advance.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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09 December 2011 Answer to your queries.

1. Composition of Remuneration Committee as per Schedule XIII- Minimum 3 non-executive independent directors including nominee directors. A director getting remuneration can be appointed as Independent Director.
But make it sure that apart from receiving director's remuneration, they do not have any other material pecuniary relationship or transactions with company, its promoters, its directors, its senior management or its holding company, subsidiaries and associates, which may affect independence of the director.
The term "independent director" is not defined anywhere in the Companies Act, 1956. Hence it is to be presumed that this provision would adopt the definition
given in Clause 49 of the Listing Agreement.

2. Constitution of Section Committee is not mandatory.

3. MD can't be termed as non-executive director.As per section 309 (4)& (7) you can pay the remuneration to non-executive director within the limit stipulated in 198(1). a director who is paid remuneration can be non-executive director.

4. Refer schedule XII. In general Companies having profit can pay remuneration of upto 5% of its net profit for one managerial person and up to 10% for all of them together for more than one person subject to the PROVISIONS OF SECTION 198 & 309

5. For paying remuneration for FY 11-12,you have to consider audited accounts 10-11

Guest

Guest (Querist)

10 December 2011 1. Can chairman of company who is paid Rs. 5.00 lacs per month as salary be designated as Non Executive Director? What is the basis difference between executive and non executive director, it is not mentioned in Companies Act anywhere. What is the criterion to demarcate between the two (as u mentioned remuneration is not the criterion)

2. Outside expert which should be there in selection committee (under Director’s Relative office or place of profit Rules) can be MBA or CA who is employee of that public company or he should be consultant of company not on rolls?

3. For the year 2011-2012 5%, 10% and 1% ceiling of net profit will be calculated from 2010-11 ? where it is mentioned ?

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