Different Committees as per the Companies Act, 2013 - Part II

Hello Friends,

Thanks a lot for your warm response and motivating comments on my previous article. After a brief look into the Corporate Social Responsibility Committee in the previous article (Click here), we will take a look into another Committee- THE NOMINATION & REMUNERATION COMMITTEE. However, first of all a quick update on my last week’s article—in addition to the four phases of draft rules as mentioned in my previous article, the Ministry has thereafter issued two more tranche of rules thereby making a total of six tranches of issued rules.

NOMINATION & REMUNERATION COMMITTEE

Subsection 1 of Section 178 of the new Companies Act, 2013 (“the Act”) read with relevant draft rules stipulates that the Board of Directors of:

1. Every listed company and;

2. Every other public company –

(i) having paid up capital of One Hundred Crore rupees or more; or 

(ii) having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Two Hundred Crore rupees;

have to constitute a Nomination and Remuneration Committee. The Act further lays down the structure and role of the Committee. This Committee shall consist of three or more non-executive directors out of which not less than one-half shall be independent directors. It further provides that the chairperson of the company, irrespective of his/her status i.e. whether executive or non-executive may become a member of the Nomination and Remuneration Committee but shall not chair the Committee. Furthermore, the chairperson of this committee or, in his absence, any other member of the committee authorized by him in this behalf will be required to attend the general meetings of the Company.

The role of the Nomination and Remuneration Committee shall be to identify persons having the desired qualifications for becoming directors or for appointment into the senior management level and to recommend their appointment and/or removal to the Board and also to carry out evaluation of every director’s performance. The act further defines the expression ‘‘senior management’’ which means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional head.

It has also been delegated the task of formulating the criteria for determining the qualifications, positive attributes and independence of a director and recommending to the Board a policy, which is to be disclosed in the Board's report, relating to the remuneration for the directors, key managerial personnel and other employees. While formulating and recommending the abovementioned policy, the Committee shall specifically ensure that-

1. The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;

2. Relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

3. Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.

In addition, it shall also take into account the financial position of the company, the industrial trend, appointee’s experience, past performance, past remuneration, etc. and should also strive to bring about objectivity in determining the remuneration package while striking a balance between the interest of the company and the shareholders.

Penalty: The Act further lays down the penalty for contravention of any of these provisions. In case of contravention, the company shall be punishable with fine which shall not be less than One Lakh rupees but which may extend to Five Lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Twenty-Five Thousand rupees but which may extend to One Lakh rupees, or with both.

P.S: This article is based on the research and contains the views of the author on the above subject. The author does not assure error free content and cannot be held liable for any errors in the article. The users and readers are advised to cross check with the concerned Act before acting upon this article.