Managerial Remuneration means salary to Managing Director, Whole-time director etc. In true sense, salary or remuneration is a wider term which includes not only cash but non-monetary benefits as well.
Remuneration is always a buzzing issue in the corporate. Companies can not freely spend the money on top executives’ salary. There are certain restrictions which put some limit on the total salary of managerial persons. In certain cases, there are certain approvals which companies need to take.
In general, the board of directors decides the salary of a managerial person which must be under the overall limit as prescribed.
For private limited companies, there is no restriction to the managerial remuneration. But, 11% restriction is certainly applicable to public limited companies and on private companies as well which are a subsidiary company of the public limited companies. It means that public limited companies can not pay more than 11% of its net profit. Nevertheless, a company can pay more than 11% by taking approval in the general meeting along with the central Government approval. This 11% limit is the overall limit for the payment of remuneration to managerial persons.
There is another set of rules which are also prescribed under the companies Act, 2013 which is schedule V.
Let’s understand the term remuneration:
The term remuneration under the companies act includes any money, benefits and perquisites (non-monetary benefits). If we going to study this definition then it will cover so many things such as rent free accommodation, sweat equity shares, bonus shares etc.
Maximum Limit on remuneration
As we stated earlier, if the company is contemplating to pay more than 11% of the net profit, then it has to follow the schedule V as well.
Section 197 of the Act, however, allows the company to pay remuneration in case of no profit or inadequacy.
However, sitting fees paid to the director shall not be considered while calculating managerial remuneration.
What shall not be included while calculating 11% limit
- Contribution to provident fund.
- Leave encashment
What happen if person is managerial person in more than one company
If a managerial person draws a salary from more than one company, then his total remuneration drawn shall not exceed the higher maximum limit admissible from any company of which he is a managerial person.
However, a person who is neither in the whole-time employment of the company nor a managing director (MD) may be paid remuneration; either through some periodic payment such as monthly, annually etc or through a commission.