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Let shareholders decide CEO pay: House panel

business Updated: Sep 06, 2010 03:02 IST
HT Correspondent
HT Correspondent
Hindustan Times

A Parliamentary Panel has asked the government to empower shareholders in fixing salaries of chief executive officers and asked it to cap managerial remunerations based on a "rational formula."

"An overall outer ceiling on managerial remuneration may be prescribed," said the Parliamentary Standing Committee on Finance, which presented its report on the Companies Bill 2009 in Lok Sabha last week.

"The remuneration payable within this overall ceiling may be decided by the remuneration committee of board or shareholders," it added.

The recommendations are likely to rekindle the debate on the salaries that India Inc pays its top executives.

Last year, Corporate Affairs Minister Salman Khurshid had urged companies to avoid paying "vulgar" salaries to their top executives even as he maintained that there were no plans to move to a state-regulated compensation regime for executives of private firms.

At present, the Companies Act 1956, caps overall managerial remuneration at 11 per cent of the company's net profits.

The corporate affairs ministry has refrained from specifying a cap but said there should be an "umbrella limit for remuneration."

The Committee headed by former finance minister Yashwant Sinha said in case there is no profit, the existing stipulation that the Centre's approval be secured before fixing salaries of top executives, be retained.

US President Barack Obama has in the recent past put a $500,000 (R2.4 crore) limit on the annual pay of executives of banks that received government assistance to counter the economic downturn.

The Companies Bill, which was introduced in Parliament last year, is based largely on the recommendations of an expert committee headed by J.J. Irani, director, Tata Sons — the holding company of the Tata group.