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A Guide to Compensation to Director in Indian Corporates

Director compensation in Indian corporates is governed by the Companies Act, 2013. It includes salary, commission, sitting fees, stock options, and other perks. For executive directors like MDs or CEOs, remuneration must align with limits under Schedule V unless approved by shareholders. Independent and non-executive directors usually receive sitting fees and profit-based commission. Public companies must disclose director pay in board reports, ensuring transparency and accountability in governance.

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A Guide to Compensation to Director in Indian Corporates

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  1. A Guide to Compensation to Director in Indian Corporates The Legal Framework for Director Remuneration : The Companies Act, 2013 governs director remuneration in India, especially through Sections 196–202, 149(9), 197, 198, and Schedule V. These provisions define limits, methods of profit calculation, and rules for compensating directors, ensuring fairness and compliance in both profit and loss scenarios. Capping and Approvals for Director Remuneration: Director remuneration in public companies is capped under Section 197 of the Companies Act at specified profit-based limits, with higher payouts requiring shareholder approval via special resolution and compliance with Schedule V. Company Director Remuneration: Components and Trends: Director pay includes fixed salary, variable bonuses, sitting fees, and expense reimbursements, with emerging trends linking compensation to ESG performance metrics for sustainable leadership. Independent Director Remuneration: Maintaining Neutrality : As per Section 149(9) of the Companies Act, independent directors can receive sitting fees, expense reimbursements, and shareholder-approved commissions, but not stock options— ensuring impartiality. SEBI’s LODR rules mandate transparent disclosure and shareholder approval for payments beyond set limits. Remuneration of Director: Transparency and Disclosures : Section 197(12) and Rule 5 mandate listed companies to disclose director-to-employee pay ratios, reasons for pay changes, employee count, and industry comparisons—promoting transparency and fairness in director remuneration. Global and Governance Mindsets : Director compensation, closely scrutinized by investors and regulators worldwide, must be performance-linked, fair compared to peers, and transparently disclosed to ensure good governance. At SKMC Global specializes in corporate governance and compliance in India, offering expert guidance on director compensation to help companies align with legal frameworks and best practices. info@skmcglobal.com +91 989-125-5499 www.skmcglobal.com

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