The ministry of corporate affairs (MCA)is mulling over revisiting the provision of the director?s remuneration in the Companies Bill, which at present is before the parliamentary standing committee on finance.
A senior MCA official told FE, ?Post-Satyam accounting there are strong chances that the ministry would re-visit the aspect of director?s remuneration in the Companies Bill. The Bill, which is based on the concept of self regulation gave full freedom to the company?s management to decide the salary of their directors by doing away with the present 11% limit and had a provision that a director?s salary can be more than 11% of the company?s profits. But after Sayam accounting fraud, there is a possibility that the government would do away with this provision?.
However, industry executives are of the view that the salary structure of the directors of a company should not be a pain point for the government and the provision of the Companies Bill should not be changed. At present, a director?s remuneration cannot exceed 11% of the company?s profits and if the management wants to pay him more than the prescribed limit, then the Central government?s permission is mandatory.
According to KTS Anand, CFO, NIIT Technologies, salaries structure should not be a pain point for the government from any perspective and it should not be taken up that seriously as disclosures are already there. ?When we circulate our balance sheet, then under Section 217 of the Companies Act 1956, we disclose salaries of the directors. In case the company suffers a loss, then there is a procedure of taking approval from central government of paying the director,? said Anand.
Prabal Banerjee, CFO, Hinduja Group said, ?In India, the salaries of the CEOs, CFOs, executive directors are determined by the majority shareholders and this is no different from the policies and regulations laid down in UK or US?.
According to Banerjee, there is a difference between US and India in terms of their shareholding structure. In India, the majority shareholders which are either the business houses or the overseas parent company owning majority decide the compensation. ?In normal circumstances, even if a minority shareholder opposes the compensation structure it may not get validated in the general body meeting which is why we don?t see the minority shareholders impacting the compensation structure of CEO?s or CFOs in any way,? said Banerjee.
In US the shareholding is usually widely scattered and groups which hold the shareholding in the range of 3-10% can get together and become a majority shareholder and then influence the salary decision of the directors.