Abstract

Chapter XIII of Companies Act, 2013 read with Schedule V and Companies (Appointment and Remuneration of Key Managerial Personnel) Rules, 2014 defines the Key Managerial Personnel in a company, their procedure for appointment and qualifications and specifies the maximum remuneration that can be paid to them under different circumstances, i.e., when there is adequate profit or when there no profit or inadequate profit. The maximum limit specified has seen a huge surge since Companies Act, 1956 through various notifications issued by the government or amendments made. The guidelines for maximum remuneration also cover remuneration to employees other than Key Managerial Persons of the company. The research project draws a comparison between the amount of managerial remuneration paid and remuneration paid to other employees in a company as covered under company law in India over the years. The comparison would be done by taking data of various big and small companies and analysing the growth rate in the amount of remuneration paid.
In a regulated economy like India, retaining skilled executives becomes challenging, affecting the supply of such people and, as a result, the amount of managerial salary. The research project deals with the comparative study of managerial remuneration paid in India, explaining the provisions of Companies Act and related rules applicable for managerial remuneration, determining the growth rate and trend of managerial remuneration in India, and comparing the same with remuneration paid to other employees of company in India.
The area of managerial compensation remains a competitive sector where all companies compete to provide better incentive and remuneration packages so as to retain the managers who can help them cope up the changing market and help them achieve their growth targets.
INTRODUCTION
Managerial pay has risen by leaps and bounds in recent decades, attracting attention from a various people including remuneration activists, researchers, the print media, regulatory
1 Student at Dharmashastra National Law University, Jabalpur

authorities, and so on. Because of the current market volatility, new products are being introduced. The job of executives has changed as a result of technical advancements and growing globalisation, it has become extremely important and difficult to enable their companies to produce better value and results. In today’s hyper-competitive corporate world, it’s difficult to maintain long-term viability. If the benefits of seizing accessible opportunities at the correct time are considerable and many, at the same time the losses are significant and numerous. The consequences of failing to seize such opportunities are likewise significant. As a result, firms have begun disbursing large remuneration packages to guarantee that executives work hard and give it their all.2
In India, determining managerial remuneration is strictly regulated, for example, there is a government ceiling on total managerial remuneration of a firm, which cannot exceed 11% of the company’s net profits. Highly qualified executives prefer to work in organisations and nations where they can be compensated based on their performance and market norms, with no ceiling on their pay. In a regulated economy like India, retaining skilled executives becomes challenging, affecting the supply of such people and, as a result, the amount of managerial salary. The research project deals with the comparative study of managerial remuneration paid in India, explaining the provisions of Companies Act and related rules applicable for managerial remuneration, determining the growth rate and trend of managerial remuneration in India, and comparing the same with remuneration paid to other employees of company in India.

KEY MANAGERIAL PERSONNEL AND THEIR REMUNERATION AS SPECIFIED UNDER COMPANY LAW
Section 203 of Companies Act, 20133 read with Rule 8 of Companies (Appointment and Remuneration of Key Managerial Personnel)4 defines and makes it mandatory to appoint Key Managerial Personnel (definition in Section 2(51)). The appointment of following personnel is compulsory for all listed companies and public companies having paid up share capital of Rupees 10 crore or more-
• Managing Director or Chief Executive Officer or manager, in their absence, Whole Time Director

2Payal, ‘Managerial Remuneration and Corporate Performance in India’ (2016), Shodhganga<https://shodhgangainflibnet-ac-in.dnlulib.remotlog.com/handle/10603/160769> accessed 24 September 2021
3Companies Act 2013, s 203
4 Companies (Appointment and Remuneration of Key Managerial Personnel) Rules, 2014

• Company Secretary, and

• Chief Financial Officer

Such appointments shall be made by passing Resolution in Board Meetings.

Managing Director as defined under Section 2(54)5 is the Director who is entrusted with substantial powers of management of the affairs of the company and includes director occupying the position of Managing Director by whatsoever name called.
Manager as defined under Section 2(53)6 means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not.
Managerial Remuneration is covered under Section 197 of Companies Act, 2013 read with Schedule V of the Act. The maximum ceiling for payment of Remuneration to Whole Time Director, Managing Director and Manager in a public company is 11% of the Net Profits earned during an year by the company, calculated in accordance with Section 198, with the exception that the directors’ salary is not deducted from the gross earnings.
Furthermore, the company may authorize the payment of remuneration exceeding 11 percent of the business’s net profits in a general meeting with the consent of the Central Government, subject to the provisions of Schedule V6. If any directors receive remuneration in excess of the prescribed limit without the previous approval of Central Government, then he/she shall refund the amount received as remuneration to the company.
A managing director’s or whole-time director’s or manager’s remuneration must not exceed 5% of the company’s net profits. If there are more than one director, the total remuneration for all of the directors and managers must not exceed 10% of the net profits.7
The remuneration payable to those directors who are neither managing directors nor full-time directors must not exceed—unless otherwise approved by a company in general meeting.
• one percent of a company’s total profits
• 3% of net profits in any other situation

5 Companies Act 2013, s 2(54)
6 Companies Act 2013, s 2(53)

The above-mentioned percentages exclude any fees paid to directors for attending meeting of committees/board or for any other purposes as decided by the company.

Remuneration paid in other capacity- Except for the circumstances mentioned below, the remuneration paid to Whole time directors or Managing Directors shall be inclusive of fees paid to them for working in other capacity in the company-
• Services of Professional Nature
• Any other services which the Nomination Remuneration Committee may decide.

Directors are entitled to sitting fees for attending meetings of Boards or Committees which shall not be more than the prescribed limit specified by the Central Government, the Central Government has specified sitting fees to be maximum Rs. 1 Lac per meeting attended to every director. It is also specified that sitting fees paid to women directors and independent directors shall be equal to fees paid to other directors of the company.
Directors are entitled to receive remuneration by way of monthly payment or by way of a percentage of net profits earned at the end of the year7.
In case company does not earn any profit or earns inadequate profit then the remuneration paid to directors without the approval of Central Government shall be within the maximum limits specified by Schedule V of Companies Act. The limit specified changes from time to time.
The current limit specified is8 –

7Companies Act 2013, s 197
8Ministry of Corporate Affairs, https://www.mca.gov.in/Ministry/pdf/AmendmentNotification_18032021.pdf

Effective Capital Limit of Yearly remuneration which must not exceed Rupees in case Managerial Person Limit of Yearly
Remuneration in case of other directors
Negative or less
than 5 crores 60 Lakhs 12 Lakhs
5 crores and above
but less than 100 crores 84 Lakhs 17 Lakhs
100 crores but less
than 250 crores 120 Lakhs 24 Lakhs
250 crores and above 120 Lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores 24 Lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores.

Any amount above the limit shall be paid if the resolution passed by shareholders, is a special resolution. When payment is required to be paid according to the Schedule V, the Schedule V additionally stipulates certain criteria and other disclosures that must be given in an explanatory statement to the notice of general meeting. Schedule V, Section III, discusses extraordinary conditions in which corporations make no profit or insufficient profit to pay any salary to their managerial people in excess of the amount stipulated in Section II above, or with the agreement of the Central Government. The previous Company Acts have all specified the same ceiling on managerial remuneration, that is 11% of net profits, as in Section 197 of Companies Act, 2013 and in Section 198 of Companies Act, 1956. However, the yearly limits for providing remuneration as stated in Schedule V, have been revised from time to time, the current limits are as per notification by Ministry of Corporate Affairs.

COMPARATIVE STUDY OF REMUNERATION PAID TO MANAGERS AND OTHER EMPLOYEES

The whole private sector in India has seen surge in the compensation and remuneration paid to employees, though there have been downfalls in the growth rare, there has been a stable growth

in the recent years, not including the years with economic crunch where the overall salary paid by private sector has taken a downward slope. Whole private sector covers employees, workmen, managers, etc. The growth specifically in case of managerial remuneration has though seen a surge in monetary value, has seen a downfall in percentage units. Compensation was in peak before demonetization that is before 2016 and that the area of executive compensation has seen downfall since then, as derived through the graphs below, which is based on study of executive compensation top 30 listed companies on BSE over 17 years in

and analysing the trend therein. The data below is from 150 companies over 10 years,

9Tarun Soni, ‘Trends and Patterns in Top Executive Compensation: Evidence from India’ LBSIM Working Paper Series (2020) https://www.lbsim.ac.in/Uploads/image/748imguf_19.pdfaccessed 26 September 2021

The average amount of salary paid by a firm to its board of directors was $20.54 million in 200203, rising to 107.79 million in 2010-11 before falling to $100.64 million in 2011-10. For the years 2003-04, 2004-05, and 2006-07, yearly growth of board remuneration was greater than 30%, but it fell in 2012. The Indian economy was also impacted by the global slump in 2008-09. Executive salary increased by 27.13 percent in 2009-10, indicating the pressure on businesses to hire and keep talented leaders in order to survive and thrive throughout the recession.
A comparison of executive and non-executive director salaries indicates comparable patterns. In 2002-03, the average salary paid by a business to its executive directors was $19.81 million, and in 2010-11, it was $197.42 million. An increase of 27.32 percent. In 2009-10, there was a 27.32% increase in executive director salary over the previous year. However, the average salary paid to company’s executive directors has decreased from 97. 42 million in 2010-11 to
88.29 million in 2011-12, a 9.38 percent decrease.

Non-executive directors’ remuneration climbed steadily from 0.72 million in 2002-03 to 12.35

10Payal (n 1) 6.

million in 2011-12. Non-executive directors were paid nearly twice as much in 2007 as they were in 2006, with an annual growth rate of 107.99 percent. Non-executive directors’ salary was lower in the first year of the slowdown period. In comparison to the previous year, the rise was only 8.14 percent. However, in the 2011-12 fiscal year, when executive directors’ pay decreased, nonexecutive directors’ pay increased. In comparison to the previous year, pay increased by 19.09 percent. Throughout the study period, the average salary of a non-executive director has shown a constant upward trend. These data show that non-executive directors have become increasingly important over time.11
CONCLUSION
The above research and analysis make it clear that the hypothesis drawn ‘While the total remuneration paid by company has seen a surge through past years, in comparison to remuneration paid to employees and workers the growth rate of managerial remuneration has sky-rocketed both in the case of maximum limits specified in the statutes and actual remuneration paid’, is proved to be true as the volume of remuneration has seen a surge and the growth rate too, which may have decreased in some years due to economic depression, has overall increased and is seeing a stable increase, though the economic factors influencing whole of the market cannot be ignored. The study also put forth the comparison between remuneration paid to executive and non-executive director, where the remunerative paid to executive directors have increased with minimal rates, the growth rate of non-executive director remuneration has increased in manifolds. The area of managerial compensation remains a competitive sector where all companies compete to provide better incentive and remuneration packages so as to retain the managers who can help them cope up the changing market and help them achieve their growth targets.
ANNOTATED BIBLIOGRAPHY
• Payal, ‘Managerial Remuneration and Corporate Performance in India’ (2016),Shodhganga-
The paper discusses and analyses the remuneration paid to managers for over 10 years of around 150 companies and draws out comparison and growth trend of remuneration and other related observations.

11Payal (n 1) 6

• Tarun Soni, ‘Trends and Patterns in Top Executive Compensation: Evidence from India’LBSIM Working Paper Series (2020)-
The Working Paper studies and compares the data of over 30 companies for 17 years and draws out analysis of remuneration paid to their executives and provides the conclusions and interpretations for remuneration based on those data values.

• Companies Act, 2013