The Statutory Constitution
Section 178 requires certain classes of companies to constitute a Nomination and Remuneration Committee. The committee must have at least three directors, with a majority of independent directors, and the chairperson must be an independent director. The committee’s role includes: identifying persons qualified to become directors and KMP; recommending their appointment and removal; formulating the criteria for determining qualifications, positive attributes, and independence; and recommending remuneration policy.
The CEO Salary Question
The CEO’s salary is not a board-only decision. The NRC must recommend the remuneration, and the board must approve it subject to Section 197 and Schedule V. Where the managerial remuneration exceeds the prescribed limits, shareholder approval by special resolution and, in certain cases, Central Government approval are required. The NRC’s recommendation should record the benchmarking, the performance criteria, and the statutory limit computation.
Director Appointment and Independence
The NRC’s recommendation on a director appointment should record: the candidate’s qualifications and experience; the criteria applied; the independence assessment where the candidate is proposed as an independent director; and the result of the background verification. A board that appoints a director without the NRC’s recommendation, where the committee is required, has bypassed a statutory filter.
The Remuneration Policy
The NRC must formulate a remuneration policy covering directors, KMP, and senior management. The policy should address: the level and composition of remuneration; the balance between fixed and incentive pay; the performance criteria; and the severance and notice-period terms. The policy must be disclosed in the board’s report and placed on the company’s website.
NRC and Related-Party Remuneration
Where a director’s remuneration is a related-party transaction—for example, a payment to a director’s firm for professional services—the NRC’s recommendation does not displace the Section 188 approval requirement. The transaction must independently satisfy the RPT approval matrix. The NRC minute and the RPT approval should be cross-referenced.
Documentation for the NRC File
The file should contain: the NRC charter; the remuneration policy; the minutes of each meeting; the benchmarking data; the independence declarations; the board resolution appointing the director or approving the remuneration; and the shareholder resolution where required. An NRC file that contains only the minutes without the supporting benchmarking and criteria is an incomplete record.
Call to Action: For NRC charter design, CEO remuneration structuring, or director appointment documentation, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.