Recent Amendments in Managerial Remuneration Rules

Ministry of Corporate Affairs came with amendment to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, last month. These rules has been published in official gazette on 30th June 2016 and came into force on that date. In this post, we will discuss these amendments.

Filing of return of appointment

Before present amendment company was required to file a return of appoint for all key managerial personnel. We have discussed this provision earlier here. Now, after this amendment, there will be no requirement to file return of appointment for CEO, CS and CFO. Amended rule 3 read as under –

A company shall file a return of appointment of a Managing Director, Whole Time Director or Manager, Chief Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO) within sixty days of the appointment, with the Registrar in Form No. MR.1 along with such fee as may be specified for this purpose.””

Less disclosure in Board Report regarding remuneration

We have discussed requirement to report about managerial remuneration earlier here. Present amendment rules omit from sub – rule (1) of rule 5 clauses (v), (vi), (vii) and (ix) to (xi). After this sub –rule (1) read as under –

“(1)Every listed company shall disclose in the Board’s report-

(i) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;

(ii) the percentage increase in remuneration of each director, Chief Financial Officer,Chief Executive Officer, Company Secretary or Manager, if any, in the financial year;

(iii) the percentage increase in the median remuneration of employees in the financial year;

(iv) the number of permanent employees on the rolls of company;

(v) the explanation on the relationship between average increase in remuneration and company performance;

(vi) comparison of the remuneration of the Key Managerial Personnel against the performance of the company;

(vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;

(viii) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration;

(ix) comparison of the each remuneration of the Key Managerial Personnel against the performance of the company;

(x) the key parameters for any variable component of remuneration availed by the directors;

(xi) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; and

(xii) affirmation that the remuneration is as per the remuneration policy of the company.

Explanation.- For the purposes of this rule. –

(i) the expression “median” means the numerical value separating the higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging all the observations from lowest value to highest value and picking the middle one;

(ii) if there is an even number of observations, the median shall be the average of the two middle values.

In short, company management is not bound to inform its shareholder about reason for increase of remuneration of key managerial personnel.

Name of employees

After present amendment, sub – rule (2) of rule 5 read as under –

“The board’s report shall include a statement showing the name of every employee of the company, who the names of the top ten employees in terms of remuneration drawn and the name of every employee, who –

(i) if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than sixty lakh rupees one crore and two lakh rupees;

(ii) if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than five lakh rupees per month eight lakh and fifty thousand rupees per month;

(iii) if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than two percent of the equity shares of the company.

This make position clear that data of every employee above the threshold limit will be required to be given otherwise data of at least top ten employees is required to be given.

These rules shall apply to all board reports prepared and adopted on or after date of publication of these rules in official gazette.

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