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Company’s Act 1956
Let’s learn more about the Company’s act 1956.
- In India the Companies Act is the legislation that primarily shapes the remuneration of top managerial personnel.
- Until 1993, the Act provided for an upper limit in the amount of compensation to be paid.
- It had been pointed out that the “regulation of director’s remuneration becomes necessary for several reasons, prominent among them being the prevention of diversion of corporate funds for personal use and the impact which an unduly high executive reward has upon the rest of society.”
- However, over the years, with the shift in India’s economic policy towards a market-oriented capitalistic economy, this particular legislation has been amended to increase the maximum pay package limits that are payable to the managerial personnel. While other reforms have taken their time to be incorporated in to the Act, the maximum pay ceiling for CEOs has been increased systematically and more frequently.
- One of the main reasons put forward for this regular increase has been the need to attract and retain talent at the senior level.
- Additionally, it has been argued that the risk and responsibility at the senior level needs to be compensated by a sufficient increase in the pay packet. Needless to mention the risk and responsibilities at the CEO’s level pertain to the uncertainty associated in fulfilling organizational objectives. This automatically indicates a strong relationship between the CEO’s compensation and organizational performance.
- Logically the CEO’s job should be at stake if the organizational objectives are not fulfilled.
Indian law does not require that the compensation committee have a charter. The scope of the Company‘s remuneration committee includes determination of the Board‘s compensation and the Company‘s policy on specific remuneration packages for executive directors including pension rights and any other compensation payment.
