Cap On Mncs' Managerial Pay Package May Be Waived
The expert group set up to recast the Companies Act is having second thoughts on retaining the present ceiling on managerial remunerations following finance minister P Chidambaram's keenness on at least freeing the foreign companies from this restriction.
At present, Schedule XIII of the Act sets a ceiling on managerial pay package at 10 per of the net profits for a firm in the black. In case the company has only one managerial professional at the helm of affairs, then the ceiling is set at 5 per cent of the net profit.
So far, the group held that the present cap on managerial remunerations was liberal enough. Some of the members even favoured lowering of the ceilings since it was felt that 10 per cent of the net profit was too hefty for a managerial pay package. For instance, if a company's net profit was Rs 100 crore, it could set aside up to Rs 10 crore (about Rs 8 lakh a month) annually as salaries and perks for its managers.
Sources said that when the group submitted a 10-page summary of its broad recommendations about a fortnight ago, Chidambaram pointed out that the Department of Company Affairs (DCA) was being deluged by applications for exemption despite the liberal allocations.
Cidambaram then expressed his desire to exempt at least the foreign firms from the ceiling, the sources said.
Though both domestic and multinational companies (MNCs) have sought an exemption, concerns had been expressed in various government quarters that such controls were unwarranted on the latter since the foreign investors saw these as deterrents. Thus, freeing the multinationals from such restrictions was being seen as foreign investor-friendly move, especially as the government has failed to meet its annual foreign direct investments (FDI) target.
Though it is not clear at this stage as to how far the group would accommodate the government's view, its deliberations during the last few days indicate that it is favourably inclined towards accepting the government's suggestion.
The group was constituted by the government after the finance minister's announcement to this effect in the last budget.
Since, it is an autonomous body, it has been liaising with the government to ensure that the recommendations find easy acceptance.