The overall remuneration that can be paid to all directors of a public company cannot exceed 11% of the net profit recorded in a particular financial year, under the Companies Act, the government said on Tuesday.
Corporate affairs minister Arun Jaitley said the total managerial remuneration payable by a public company to its directors, including managing as well as whole time directors, are regulated as per provisions of the Companies Act, 2013.
“In respect of any financial year, the overall remuneration payable by a company to all its directors, shall not exceed 11% of the net profits of the company for that financial year,” he said in a written reply to Rajya Sabha.
Those firms having a minimum paid-up capital of Rs 5 lakh or more are considered as public companies under the Act.
“In case of losses or inadequacy of profits, the remuneration may be paid, without approval of the central government, provided it is within the limits prescribed, and subject to conditions specified in the Act and the rules thereunder,” Jaitley said.
If the company is not able to comply with such provisions, then the remuneration can be paid only with the previous approval of the central government, he added.
The minister’s response was to a query on whether the government’s attention has been drawn to reports that a number of publicly-listed companies are not paying dividend to their shareholders while offering very high salaries to promoter directors and managing directors despite balance sheet being in the red.
Besides, it was also asked whether the government would consider regulating the salaries of promoter directors/managing directors by putting a cap on such outgo.
To another question on whether the government would consider making the companies pay minimum dividend to small shareholders for whom the dividend is the main source of income, the minister said no such proposal is under the consideration.