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Loss-making firms get more leeway in deciding managerial pay

 PTI |  2016-09-26 00:33:46.0  |  New Delhi

Loss-making corporates now have more freedom in deciding managerial salaries, with the government hiking the stipulated executive pay limit under the companies law.

After taking into consideration the current trends, the Corporate Affairs Ministry has increased the quantum of remuneration which can be paid by companies having inadequate annual profits without prior government approval.

A ministry official said the changes have been made after taking into account the overall salary trends in the last few years. The previous limit was decided in 2011 and since then, relative remuneration of executives have gone up significantly. The revised limits reflect those trends, the official noted. The limit of remuneration payable by companies having no profit or inadequate profit without central government approval has been increased by way of amendments to Schedule V of the Companies Act, 2013.

Under the revised framework, companies where the “effective capital” is negative or less than Rs 5 crore, the maximum annual salary that can be paid to a managerial person without government nod has been raised to Rs 60 lakh.

For such companies having effective capital of Rs 5 crore and above but less than Rs 100 crore, the pay limit is Rs 84 lakh. In the case of entities with effective capital of more than Rs 100 crore but less than Rs 250 crore, the cap is Rs 120 lakh. According to the revised norms, the salary limit up to which government approval is needed is Rs 120 lakh plus “0.01 per cent of the effective capital in excess of Rs 250 crore” for firms whose effective capital is over Rs 250 crore.

However, the limits would not be applicable for a managerial person who is functioning in a professional capacity provided the individual does not have any interest in the capital of the company, its holding firm or any of its subsidiaries, among other conditions.

“Any employee of a company holding shares of the company not exceeding 0.5 per cent of its paid up share capital under any scheme formulated for allotment of shares to such employees, including Employees Stock Option Plan or by way of qualification, shall be deemed to be a person not having any interest in the capital of the company,” the ministry said.

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