In a stringent set of executive pay disclosure norms, the government today proposed to make it mandatory for listed companies to give their rationale behind salaries and hikes given to top management personnel vis-a-vis the business performance.
The companies have already been asked to provide a ratio of the top management remuneration and the median employee salary on an yearly basis under the new Companies Act.
Releasing detailed draft rules for the provision related to the appointment and remuneration of managerial personnel, the Corporate Affairs Ministry today proposed various measures like mandatory disclosure of parameters for any variable component of remuneration availed by the directors.
The stringent norms come amid instances of companies, even without adequate profits, doling out exorbitant salaries to their top executives.
Companies are also required to explain the "relationship between average increase in remuneration and company performance".
Further, the comparison of the remuneration of the key managerial personnel against the performance of the company should be disclosed.
According to the new rules, the ratio of remuneration of each director to the median compensation of the employees of the company for the financial year needs to be disclosed.
Besides, listed firms are also required to disclose the percentage increase in remuneration of each director and CEO as well as the percentage rise in the median compensation of employees in the financial year.
"The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year" should be disclosed, as per the draft norms.
Further, the draft norms call for a statement from the company's board having names of employees, having been there throughout a financial year, and whose aggregate remuneration was not less than Rs 60 lakh.
The statement should also indicate whether any such employee is a relative of any director or manager of the company and if so, name of such director.
Meanwhile, the Ministry has suggested that every listed company and every other company having a paid-up share capital of Rs 5 crore or more should have whole-time key managerial personnel.