The Telegraph
Since 1st March, 1999
Email This Page
Hike in pay ceiling for executives

New Delhi, Feb. 16: Corporate head honchos can look forward to a sharp hike in compensation packages with the Department of Company Affairs (DCA) planning to raise the ceiling on managerial remuneration by 35-50 per cent in the case of companies with little or no profits.

At present, the pay ceiling for top managers of such companies is capped at Rs 4 lakh per month. “The Naresh Chandra committee, which has been formed to revise managerial remuneration, is expected to recommend a sharp hike in the ceiling,” a top DCA official told The Telegraph.

The official said two sets of proposals are now doing the rounds: the first is to raise the present ceiling by 35-50 per cent; the second is to allow a payout of up to half a per cent of the turnover to the top manager.

In sectors like gas, steel and ports, companies have a huge turnover but little profitability. The current cap on managerial remuneration means that these sectors —whose operations are constrained by the long-gestation periods for new projects and low profitability — do not attract the best talent in the industry.

Experts felt that it was not fair to expect talented professionals to head such companies when they were being offered a limiting pay packet.

The DCA has formed a committee headed by Naresh Chandra to revise the managerial remuneration of Corporate India. Schedule 13 of the Companies Act governs the managerial remuneration of companies.

Managers of companies with little or no profits are expected to be the biggest beneficiary of the pay revision exercise. The top men in other companies that regularly make profits will not get the benefit of a greater headroom since the ceiling on managerial remuneration will be pegged at the existing level of 10 per cent of net profits.

Schedule 13 of the Companies Act, which governs the managerial remuneration, was amended in January last year. According to the revised schedule, which is divided into three tiers, the upper limit is that of Rs 4 lakh, preceded by a slab of Rs 2 lakh depending on the effective capital of the company.

The third tier also has a cap of Rs 4 lakh per month but it pertains to those firms which have to take prior approval from the Centre. However, firms falling in the special economic zones are not governed by these ceilings and the guidelines on managerial pay in their case is relaxed.

Corporate India has been demanding a higher pay packet, especially for the top managers. It is common knowledge that the rules regarding pay ceilings are flouted by firms through ingenious ways. The higher ceilings are expected to put an end to that pernicious practice, a DCA official said.

Email This Page