Appointment and Remuneration of Key Managerial Personnel

Appointment
and
Remuneration
of
Key Managerial
Personnel
Introduction
– The Companies Act, 2013, has used the term key management personnel to
define the executive management.
– Chapter XIII of the Companies Act, 2013 read with Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014 deal with the legal and
procedural aspects of appointment of Key Managerial Personnel
Key Managerial Personnel
– As per section 2(51) “key managerial personnel”

1. The Chief Executive Officer or the managing director or the manager;
2. The company secretary;
3. The whole-time director;
4. The Chief Financial Officer; and
5. Such other officer as may be prescribed
Appointment of Managing Director,
Whole-Time Director or Manager
– Section 196 of the Companies Act, 2013
– A company shall not appoint or reappoint any person as its Managing Director,
Whole Time Director or manager for a term exceeding five years
– Section 196(4) and Section 196(5) is not applicable to Private Company
– Section 196 (2), (4) & (5) shall not apply to Government Company
Appointment with the Approval of
Central Government
– Through e-Form No. MR.2.
– As per Section 201, before such application is made, there shall be issued by a
company a general notice to the Members atleast once in a newspaper
– Central Government or Company to Fix Remuneration Limit with respect to
appointment or remuneration (Section 200)
Disqualifications
– Section 196(3)
– Shall appoint or continue the employment of any person as its managing director, whole time
director or manager who—
1. Is below the age of twenty-one years or has attained the age of seventy years: Provided that
appointment of a person who has attained the age of seventy years may be made by passing a
special resolution in which case the explanatory statement annexed to the notice for such motion
shall indicate the justification for appointing such person;
2. Is an undischarged insolvent or has at anytime been adjudged as an insolvent;
3. Has at any time suspended payment to his creditors, or makes, or has at any time made, a
composition with them; or
4. Has at any time been, convicted by a court of an offence and sentenced for a period of more than
six months
Reappointment of Managing Director
– Sections 196 and 203 of the Companies Act, 2013

– Must be taken for consideration before the expiry of his term of office
– Rest of the provisions for reappointment of a managing director are same as in
the case of appointment of a managing director.
Appointment of Key Managerial
Personnel
– Section 203 of the Companies Act, 2013 read with Rule 8
– Every other public company having a paid- up share capital of rupees ten crores
or more
– Every whole-time key managerial personnel of a company shall be appointed by
means of a resolution of the Board containing the terms and conditions of the
appointment including the remuneration.
– Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014,
requires such appointment by the Board of Directors only by means of Resolution
passed at meeting of the Board.
Functions of Company Secretary
– Section 205
1. To report to the Board about compliance with the provisions of this Act, the rules
made there under and other laws applicable to the company;
2. To ensure that the company complies with the applicable secretarial standards;
3. To discharge such other duties as may be prescribed.
MANAGERIAL REMUNERATION
– While it is important to incentivize the workforce performing the challenging role of
managing companies, it is equally important not to go overboard with the perks
and the pay
– In India, to keep a check on unnecessary profit squandering by companies and,
at the same time, to ensure adequate and reasonable compensation to
managerial personnel, the law intervenes to do the balancing act.
OVERALL MAXIMUM
S. No.
MANAGERIAL REMUNERATION
Persons entitled for Maximum remuneration in If remuneration exceeds maximum
remuneratio any financial year remuneration in any financial year
as
provided under column (b)
a b c
1 Directors including managing 11% of the net profits of the Company in general meeting with
director, whole time director and company for that financial year approval of Central Government
manager of public companies subject to provisions of Schedule V
may pay remuneration in excess of
11% of the net profits of the company.
2 One Managing director/ Whole 5% of the net profits of the With the approval of the company in
time director/ manager company for that year general meeting this limit may be
exceeded.
3 More than one Managing 10% of the net profits With the approval of the company in
director/ Whole time director/ general meeting this limit may be
manager exceeded.
4 Directors who are neither 1% of the net profits of the Approval of the company in general
Managing director nor whole time company if there is a managing meeting
directors director or a whole time director is required.
5 Directors who are neither 3% of the net profits of the Approval of the company in general
Managing director nor whole time company if there is no meeting
directors managing director or whole is required.
time director
Remuneration payable by companies having no profit or
inadequate profit without Central
Government approval
Where the effective capital is Limit of yearly remuneration payable shall

not exceed
• Negative or less than ` 5 crore 60 Lakhs
• ` 5 crore and above but less than ` 100 84 Lakhs
crore
• 100 crore and above but less than ` 50 120 Lakhs
crore
• ` 250 crore and above 120 lakhs plus 0.01% of the effective capital
in excess of ` 250 crore
Remuneration to Directors in other
Capacity
– Section 197(4)
1. The services rendered are of a professional nature; and
2. In the opinion of the Nomination and Remuneration Committee (if applicable)
or the Board of Directors in other cases, the director possesses the requisite
qualification for the practice of the profession.
Sitting Fees to Directors for Attending
the Meetings
– A director may receive remuneration by way of fee for attending the
Board/Committee meetings or for any other purpose as may be decided by the
Board
– The Central Government through rules prescribed that the amount of sitting fees
payable to a director for attending meetings of the Board or committees thereof
may be such as may be decided by the Board of directors
Monthly Remuneration to Director or
Manager
– Section 197
– Permissible forms of Remuneration
– Independent directors are not entitled to stock options
– Commission or remuneration from holding or subsidiary company
Compensation for Loss of Office of Managing or
Whole- time Director or Manager
– Section 202
– Company may make payment to a managing or whole-time director or manager,
but not to any other director, by way of compensation for loss of office, or as
consideration for retirement from office or in connection with such loss or
retirement.
SECRETARIAL AUDIT
– Secretarial Audit is a compliance audit and it is a part of total compliance

management in an organisation.
– It helps to detect noncompliance and to take corrective measures.
– The Central Government through rules has prescribed such other class of
companies as under-
1. Every public company having a paid-up share capital of fifty crore rupees or more; or
2. Every public company having a turnover of two hundred fifty crore rupees or more.

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Appointment

– As per section 2(51) “key managerial personnel”

– Sections 196 and 203 of the Companies Act, 2013

Where the effective capital is Limit of yearly remuneration payable shall

– Secretarial Audit is a compliance audit and it is a part of total compliance

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