Managerial Remuneration

Managerial Remuneration

• Managerial remuneration is the salary paid to the managers of the company on the Top management level.

• Example of one such post is Director of the company.

• The managerial remuneration is operated under Companies Act, 1956.

• To clear up the concept the Act also defines who is a manager and who is a director of the company.

Definition

• Manager :– Section 2(24) of the Companies Act 1956,

defines the term manager, means an individual who, subject to superintendence, control and direction of Board of directors, has the management of the whole, or substantially the whole, of the affairs of the company, and includes a director or any other person occupying the position of a manager, by whatever name called, and weather under a contract of service or not.

Index

• The presentation is divided to following section– Maximum limit one can pay to manager.– Minimum limit one can pay to manager.– Calculation of managerial remuneration.– Remuneration to Manager– Overall remuneration limit– Remuneration to Director

Maximum and Minimum pay

• Maximum pay to a manager can be 11% of the company’s profit.

• It is mentioned in Section 198 of the Companies Act 1956.

• If in any financial year company has no profit or the profit are inadequate, the company shall not pay to its managers.

• This decision was made after an amendment in 1988 to 198 (4) of the companies act 1956.

Calculation of Managerial Remuneration

• The remuneration can be broken down into– Salaries and Allowances– Monitory values of various prerequisites – Contribution to provident, superannuation, gratuity funds– Commission

• Benefits– Any expenditure incurred by the company in providing rent free

accommodation, or any other benefit or annuity.– Other benefit or concessional benefit– Any expenditure in respect of any obligation paid.– Any expenditure incurred by company in effecting any insurance

on the life of the managerial.

Remuneration

• A manager can receive monthly pay or a percentage of net profit or partly by the way of a monthly payment and partly by the way of specific percentage.

• Total remuneration cannot exceed 5% of net profit of the company.

• The net profit is to be calculated in the manner mentioned in section 349 and

Overall Remuneration LimitIf  there is only one managing director 11%

If more than one managing director 5%

If there is only one MD 10%

If there is only part time directors only and has no MD 3%

If there is pert time directors and also have one or more MD 1%

If there is manager 5%

Remuneration to The DirectorDirector types Percentage Profit

If one whole time director 5%

If more than one whole time director 10%

If only part time directors 3%

If part time directors as well as whole time director

1 %

However the company can increase the remuneration with the previous approval of the central government and by passing a special resolution.

The net profit for this purpose shall be calculated in the manner laid down in section 349 and 350.

A director who is in receipt of any commission from the company is not entitle to receive any commission or remuneration.

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