The government is expected to do away with the ceiling on the remuneration of directors of public companies and their subsidiaries, even if they are private firms.
The ministry of company affairs has endorsed the views of the JJ Irani Committee to free managerial remuneration from government control.
This is proposed to be part of the new companies law being drafted by the ministry.
"The decision on how and what the directors should be paid is best left to a company, subject to approvals by shareholders. There are no such restrictions in other countries. But we will strengthen the disclosure requirements to ensure transparency and accountability," a ministry official told Business Standard on Monday.
The Companies Bill is likely to be introduced in Parliament in the winter session.
For companies making inadequate profits or suffering losses, the new law is expected to specify that their board of directors will have to consider the recommendations of the remuneration committees of such firms and take creditors' approval in certain cases.
The cap on the sitting fees of non-executive directors is also expected to be removed. The Bill will also do away with the need to specify how net profits of companies are to be computed for directors' remuneration. What constitutes remuneration will be left to the rules in the new Act.
The existing Companies Act restricts the remuneration of a whole-time director or a managing director of a public company or its private subsidiary to five per cent of net profit.
If the number of such directors is more than one in a company, the overall ceiling is 10 per cent for all of them put together. To pay more than what these caps have set, companies need government permission.
In case of "other" directors, government approval is required at present for setting fixed remuneration while commission can be authorised by a company through a special resolution.
Companies also require government approval if the overall remuneration of all other directors exceeds one per cent of net profits. This is for any company that has a managing director or a whole-time director. But, if a company does not have a managing director and a whole-time director, the limit is three per cent of net profit for 'other' directors.
Finally free
Earlier
-
Till about 25 years ago, the specified remuneration limit was not linked to profit
Now
-
MDs and whole-time directors: individual ceiling of 5% of net profit with an overall cap of 10%
- Other directors: overall cap of 1% if the firm has whole-time directors or MD; 3% in other cases
© 2025