Remuneration in public company

There is a public limited company (paid up capital Rs. 25 crore) in which 10 directors are there. Out of which one is Managing Director and one is Chairman. Now we want to give remuneration of Rs. 5.00 Lacs per month each to both MD and Chairman which we can comfortably give as per schedule XIII. To other 8 directors all are paid salary in the range of Rs. 50000 to 100000 per month.

In short all our 10 directors are paid Directors remuneration. Company is planning to get listed with stock exchange.

Now my queries are :

1. What will be the constitution of remuneration committee. I do not have any independent director in the company. Can a director who is paid remuneration be appointed as independent director.

2. Is constitution of Selection committee necessary / mandatory? If so, under which section or provision?

3. Can MD or chairman (in my case they are paid salary of Rs. 5.00 Lacs p.m.) be designated as non executive director? Can a director who is paid salary be treated as non executive director?

4. How much remuneration I can pay to all the directors under the companies act provisions section 198, 349, 350.

5. For paying remuneration for the year 2011-2012 we have to consider 11% of net profits of 2010-2011 or 2011-2012.

6. Can chairman of company who is paid Rs. 5.00 lacs per month as salary be designated as Non Executive Director? What is the basis difference between executive and non executive director, it is not mentioned in Companies Act anywhere. What is the criterion to demarcate between the two (as u mentioned remuneration is not the criterion)

7. Outside expert which should be there in selection committee (under Director’s Relative office or place of profit Rules) can be MBA or CA who is employee of that public company or he should be consultant of company not on rolls?

8. For the year 2011-2012 5%, 10% and 1% ceiling of net profit will be calculated from 2010-11 ? where it is mentioned ?

Pls elaborate and clarify.

I convey my thanks in advance.

Dear Neha

1. What will be the constitution of remuneration committee. I do not have any independent director in the company. Can a director who is paid remuneration be appointed as independent director.

The Remuneration Comittee should comprise of non-executive directors, the Chairman of committee being an independent director.

Paid Director can be appointed as an Independent Director. However the tern Independent director has been defined in Cluase 49 of the Listing agreement. Please go through it.

2. Is constitution of Selection committee necessary / mandatory? If so, under which section or provision?

So far as companies Act is concerned, the Act is silent regarding Selection Committee. However as per-

DIRECTOR'S RELATIVE (OFFICE OR PLACE OF PROFIT) RULES, 2011 which is applicable to all companies registered under the Companies Act, 1956

Any relative of Directors or Director can hold place of Office or profit upto remuneration of Rs. 2,50,000/- pm with the approval of Board, shareholder and selection committee. No need to take the CG approval. However for remuneration exceeding Rs. 250000, CG approval is required.

3. Can MD or chairman (in my case they are paid salary of Rs. 5.00 Lacs p.m.) be designated as non executive director? Can a director who is paid salary be treated as non executive director?

MD can never be designed as Non Executive Director. However the Chairman can be the executive or non executive. Regarding composition of board of Director please refer Clause 49 of the listing agreement.

4. How much remuneration I can pay to all the directors under the companies act provisions section 198, 349, 350.

The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its Manager in respect of any financial year shall not exceed eleven per cent of the net profits of that company for that financial year computed in the manner laid down in sections 349 [and 350].

5. For paying remuneration for the year 2011-2012 we have to consider 11% of net profits of 2010-2011 or 2011-2012.

For paying remuneration for the year 2011-2012, For calculating net profits FY 2010-2011 will be taken into consideration.

The Chairman can be the executive or non executive.

Executive Director means the Director who devote his whole time for the employment of the Company. Executive Director means the Whole time director.

Non executive Director means who are not devoting his whole time for the employment of the Company.

Suppose you are going to appoint any relative of the Director as Marketing head then outside expert from that particular field is required to be appointed i.e expert from Marketing field.

So for each appoinment the outside expert is required. Now suppose you wants to appoint any relative of the Director as HR manager, then the outside expert from that particular field is required i.e expert in HR administration.

So every time selection committee will get change. Hence you are required to have Selection committee like selection Committee I, Selection Committee II likewise.

8. For the year 2011-2012 5%, 10% and 1% ceiling of net profit will be calculated from 2010-11 ? where it is mentioned ?