No government approval needed for compensation of top executives

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NEW DELHI: Corporates will no longer require government’s approval for paying managerial remuneration to key executives beyond the prescribed threshold if they have got the nod of shareholders.

The government has notified the rules to give effect to amendments to the Companies Act 2013 that liberalised the managerial remuneration provisions under the law.

“In a move designed to empower common shareholders of a company, the government has notified that remuneration in excess of individual limits laid down for executive and non-executive directors will henceforth be approved by shareholders through a special resolution,” the ministry said in a statement. This will be applicable for public companies.

“The approval of the central government will no longer be required for payment of remuneration to managerial personnel (in excess of 11% of the net profit of a company)” the ministry said.

In case of companies that have defaulted on payment of banks, financial institutions or any other secured creditor, the government has made it mandatory to secure creditor’s approval before placing the matter of increasing remuneration for shareholders’ approval.

“It has been stipulated that where a company has defaulted on payment of dues to any bank, financial institution or non-convertible debenture holder or any other secured creditor, their prior approval will be required before placing the matter for consideration and approval in the general meeting of the shareholders,” the statement said.

Under Section 197 of the Companies Act, firms are required to get approval at their general meetings for payment of managerial remuneration in excess of 11% of the net profit.

“All pending applications submitted to the ministry for approval of proposals for payment of managerial remuneration in excess of the limits laid down would automatically abate and companies are free to obtain requisite approvals for those proposals, from the shareholders within one year,” the statement added.

For loss making or companies with inadequate profit, remuneration can be paid in accordance with prescribed limits in the law and no approval of the government would be required for the same.

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