Guidelines Of

Companies Act
Relating to CEO
Compensation Presented by = Mohit
Sharma
 Meaning

Features

Table of Factors

contents Legal provisions *companies act 1956

Companies act 2013

Elements of executive compensation

 An executive is a person
who  is a member of the The CEO or the managing
highest decision-making director or the manager.
group in an organization.

Executive
The Company Secretary. The Whole-time director.

The Chief Financial Any other officer as may

Officer be prescribed.
Factors Affecting Complexity of the Job
Executive
Compensation Competency Required

Capacity to Pay

Organisational Philosophy

International Impact

Legal Provisions
Guidelines •In India, first time law has • 198 Overall maximum
been prescribed in 1956 as managerial remuneration and
managerial remuneration in
of company act for maximum
remuneration of the
case of absence or inadequacy
of profits
Companies managerial. Sections 198, 309,
310 and 311 read with
• 309 Remuneration of directors
• 310 Provision for increase in
ACT 1956 schedule XIII of the Companies
Act, 1956 regulate with the
remuneration to
Government sanction
require

managerial remuneration in • 311 Increase in remuneration

India. of managing director on
reappointment or
appointment after Act to
require Government sanction.
 • Regular amendment has been made in the law
regarding the company act. Recent amendment
was made for remuneration of the managerial
in 2013 as Company act 2013 which replaced
the earlier company act 1956.
• Executive are top level managerial, who is
having keys managerial role between the

Companies company and shareholders. A well and balance

designed compensation attracts the executives
to motivate to works and creates the long term
ACT 2013 firm value. Several regulations and provisions
have been implemented in India for
compensation for executives. As per the recent
regulation, company act 2013 becomes the
important act for appointment and remuneration
of managerial.
Section 197 of the company act defines the total
remuneration to the managerial persons, whose total
remuneration of executives is based on the net profit of a
company, which computed as per the manner adopted in
the section 198.

As per company act 2013, a maximum ceiling of

remuneration is exempted for Private limited company; a
private company can pay any amount to the managerial.
as per the news paper, Naveen Jindal, executive vice-
chairman and managing director of Jindal Steel & Power
was highly paid CEO in India, whose estimated
commission value received from the profit was Rs 39.7
lakh apart from the perks and salary.
• Company act 2013 prescribed the maximum ceiling of
remuneration which is applicable to public company or a
private company which is subsidiary of public company
known as deemed public company. Company act 2013
clearly regulated how much remuneration is prescribed to
Managerial in India.
• As per the section 197, prescribed the maximum ceiling
for payment of managerial remuneration by a public
company to its director, whole time director or manager
should not exceed the 11% of the net profit of the
company in that financial year computed in accordance
with section 198 except that the remuneration of the
directors shall not be deducted from the gross profits.
• The public company in the general meeting may consent
the payment of remuneration exceeding the 11% of the
net profits of the company with the approval of central
government and provisions of Schedule V. The net profits
for the purpose of this section should be computed as per
guidance adopted in section 198.
 The remuneration The remuneration
In case if there is Wherein a public payable to directors payable to directors
only one managing company is having who are neither who are neither
director or whole- more than one such managing directors managing directors
time director, the director then total nor whole-time nor whole-time
remuneration remuneration directors shall not directors shall not
payable by public payable by public exceed 1% of the exceed 3% of the
company shall not company to them net profits of the net profits of the
exceed 5% of the shall not exceed 10% company, if there is company, if there is
net profits of the of the net profits of a managing or no managing or
company. the company. whole-time director whole-time director
or manager. or manager.
 Elements of executive compensation

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