Payroll Manager Tutorial | Managerial Remuneration & Companies Act 1956

Managerial Remuneration & Companies Act 1956

• The Companies Act, 1956, contemplates five categories of managerial personnel:
• An ordinary director, who is the director simplicities; b) a part-time paid director, being a director in the part-time employment of the company; – a whole-time director, being a director in the whole-time employment of the company; d) a managing director, being a director entrusted with substantial powers of management; and e) the manager, having the management of the whole, or substantially the whole, of the affairs of the company.
• The remuneration payable to a director may take any one or more of the following forms: Sitting fee for each meeting of the Board, or a committee thereof, attended by him; monthly, quarterly or annual payments made to him; or a commission payable to him at specified percentages of the net profits of the company computed in the manner referred to in Section 198(1).
• Thus, the Companies Act enlarges the ordinary meaning to the word `remuneration’ to payment in money or otherwise for services rendered.
• A CEO may be paid remuneration by way of a monthly payment and/or at a specified percentage of the company’s net profits.
• While, some companies prefer not to pay any commission and in lieu thereof absorb the element of commission into the monthly salary so as to ensure a steady income for the CEO irrespective of fluctuations in the net profits of the company from year to year, others go to the extent of linking the CEO’s pay with the share price of the firm by issuing employee stock options to him/her.
• Consider the remuneration paid to Corporate CEOs (that is, Managing Directors or Chairman in some organizations). Section 198 of the Companies Act, 1956, limits the overall maximum managerial remuneration payable by a public company to persons entrusted with managerial functions to 11 per cent of the company’s net profits (percentage of the net profits as contemplated by Section 198 (1) is to be computed in the manner laid down in Sections 349, 350 and 351 in the Companies Act).
• This percentage is exclusive of fees payable to directors for attending meetings of the Board or committees thereof. The Section is concerned especially with managerial remuneration payable to managing directors. On the other hand, Section 309 is concerned with total remuneration payable to directors; whatever is the nature of such remuneration, managerial or otherwise.
• Obliging to the frequent demands/representations of the different industry chambers and with the shifting economic policy, the Companies Act was amended from time to time. For example, from a salary limit of Rs 90,000 pa in 1969-74, in 1994, the upper limit for salary was eliminated (the only limiting factor being Section 198).

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