A managerial person means a managing director, whole-time director or manager incorporated in India as per the Companies Act, 2013. Managerial remuneration includes pay, compensation, or reward for work which is earned by a managerial person. Companies Act, 2013 has certain restrictions on the pay of Managerial Remuneration.

Applicability

Private Limited Companies and Public Limited Companies are both required to follow with the regulations as per Companies Act 2013 regarding the payment of managerial remuneration. Hence, any person needs to become a Director of a company to be aware of Managerial Remuneration, as per Companies Act, 2013.

Managerial Remuneration

Managerial remuneration includes pay, compensation, or reward for work provided to a managerial person. Managerial remuneration also includes the expenditure incurred by a company on some specific things:

  • Providing rent-free accommodation to any of the company’s directors and manager or providing any other benefit or amenity, Expenditure incurred by the company in this will be included.
  • Providing any other benefit or amenity free of charge or at a concessional rate to any of the company’s directors or managers, Expenditure incurred by the company in this will be included.
  • Expenditure incurred on any obligation or service,  for any of the company’s directors or managers and paid by the company will be included.
  • Pay to effect any insurance on the life of, or to provide any pension, annuity or gratuity for, any of the company’s director and manager or his/her spouse and/or child, Expenditure incurred on it will be included.
  • Expenditure incurred by the company on behalf of its managerial person for indemnifying them against any liability in respect of any negligence, default, misfeasance, breach of duty, or breach of trust for which they may be guilty about the company and if such a person is proved to be guilty, the premium paid on such insurance would be treated as part of its remuneration.
  • Pay for maintenance of vehicles about personal use by the director or manager, expenditure on it will be included.

Managerial Remuneration – Company Having profit

Remuneration by way of dearness allowance, salary, commission, dearness, perquisites, commission, and other allowances by the company will not be exceeding 5% of its net profit for one managerial person. The managerial remuneration cannot exceed 10%of net profit If there is more than one managerial person, then managerial remuneration cannot exceed 10% of net profit for all of the managerial persons together.

Managerial Remuneration under different sections

Managerial remuneration to be 11% maximum [Sec.197(1)]:

The total managerial remuneration payable by a public company, to its directors, including MD and WTD, and its manager in respect of any FY shall not exceed 11% of the net profits( net profits for this purpose shall be computed as per section 198) of that company for that financial year. It is computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

  • Remuneration exceeding 11%[First Provision to Sec.197(1)]: Provided that the company in general meeting may, with the approval of CG, authorize the payment of remuneration exceeding 11% of the net profits of the company.
  • Remuneration of Directors and Manager[ Second Provision to Sec.197(1)]: The remuneration payable to anyone MD; or WTD or manager shall not exceed 5% of the net profits of the company. If there is more than one such director, remuneration shall not exceed 10% of the net profits to all such directions and manager taken together. The remuneration payable to directors who are neither MDs nor WTDs shall not exceed, 3% of the net profits of the company.

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Sitting Fees [Sec.197(2) & Sec.197(5)]:

The percentages aforesaid shall not be exclusive of any fees payable to directors. A director may receive remuneration by way of fee for attending meetings of the Board or Committee.

The situation in case of no profits or inadequate profits [Sec.197(3)]:

If in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any MD or WTD or Manager, by way of remuneration any sum exclusive of any fees payable to directors.

Remuneration to be determined by the articles or GM[Sec.197(4)]:

The remuneration payable to the directors of a company, including any MD or WTD or manager shall be determined, by the provisions of this section. Either by Articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting. And the remuneration payable to a director determined shall be inclusive of the remuneration payable to him for the services rendered by him in any other capacity.

Remuneration for professional services not to be included in ‘remuneration’ [provison to Sec.197(4)]:

 Provided that any remuneration for services rendered by any such director in other capacities shall not be so included if-

  • the services rendered are of a professional nature; and
  • in the opinion of

-the Nomination and Remuneration Committee, if the company is covered under sub-section(1) of section 178, or

-the Board of Directors in other cases,

-the director possesses the requisite qualification for the practice of the profession.

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