Central govt relaxes norms to increase salaries of top executives

The central government is planning ease the norms related to the appointment and remuneration of chief executive and other executives of the listed companies.

The Ministry of Corporate Affairs has modified the current provision in raising the salary of a chief executive officer beyond a certain limit. Now, public limited companies will not need the government’s approval in doing so. The amended rules will be announced by the government later today.

The companies can now decide raise in remuneration through a special resolution rather than approaching the government.

“In a move designed to empower common shareholders of a company, the government has notified that remuneration in excess of individual limits laid down for executive and non-executive directors shall henceforth be approved by shareholders through a special resolution,” said a statement issued by the ministry.

What are the current norms?

Prior to this, It was mandatory for all public companies to seek the government’s approval in case of the rise in remuneration of managerial personnel is more than 11% of the net profit of the firm. Now, the firms are free to do so with shareholder’s nod. This will be applicable to all the pending applications.

An approval from the entity (Bank or any financial institution) before the proposal to shareholders will be mandatory if the company has any dues against it.

The amendments are made to Schedule-V of the Companies Act. The provision of Schedule-V are applicable in case the firm suffers from loss or insufficient profits.

Why Govt intends to relax the norm?

The Registrar of Companies constitutes of around 1 million registered firm. This action by the ministry will certainly smooth the way of doing business. Presently, a loss-making firm finds it difficult to hire top-executive officers. They can offer an annual package of no more than ₹60 lakh if the capital of the firm is less than ₹5 crore. This change will allow such companies to offer heavy packages to the top managerial official.

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