Govt to review executive compensation practices at companies
New Delhi: The government is looking to review the guidelines governing executive pay practices at the companies to bring them in tune with the changing times in terms of the economic advances in the country.
The existing guidelines, including on disclosures required to be made by the companies about high compensations paid to the executives, have been in place for decades and they might not be necessarily reflecting the current economic scenario of the country, a senior official said.
The Corporate Affairs Ministry had appointed an expert panel last year to look into the matter and a report has been submitted by this committee after studying the executive pay practices at various companies, including loss-making ones.
"We are going through the panel report. Our aim is to ensure that executive compensation practices are in tune with the changing times," the official said.
The companies are currently required to disclose the details of all the employees earning salaries beyond a threshold limit, which varies from Rs one lakh to Rs five lakh per month. But these ceilings are said to be too less in the present context when executive income levels have gone much higher across many sectors.
According to the official, various elements of compensation including salary and other benefits would be taken into consideration while looking into the guidelines.
It could not be ascertained whether the government would also look at reviewing the cap of 10 per cent of annual profits that certain public companies can pay to their top management personnel, including directors, without the government's approval.
This measure already forms part of the new Companies Bill, which has been passed by the Lok Sabha and awaits clearance from the Rajya Sabha. For one individual director, including the Managing Director, the Bill has proposed a similar ceiling of five per cent.
Though norms are already in place for top management remunerations at companies, including loss-making entities, the panel's views would be used to have more clarity and better understanding of existing trends and necessary changes.
In the case of loss-making firms, the management has to take government's approval before paying salaries to their top management executives, within certain ceilings and conditions.
Generally, senior executives' compensations are linked to the overall performance of the company. But there have been instances where entities, despite making losses, have given handsome pay packets to the top management personnel.
In recent times, there have been concerns from various stakeholders about exorbitant pay packages doled out to select top executives.