Managerial remuneration

Hi Mr Khandelwal,

To me it seems the golden handshake amount dispensed out to the MDwon't form part of the Managerial Remuneration for the purpose ofdetermining the ceiling of Section 309/198.The severance pay is not Remuneration in the sense in which it isspoken about in the Companies Act. Section 309(3) says this:[(3) A director who is either in the whole-time employment of thecompany or a managing director may be paid remuneration either byway of a monthly payment or at a specified percentage of the netprofits of the company or partly by one way and partly by the other]Although what constitutes "remuneration" hasn't been definedanywhere in the legislation, reading how Section 309(3) lays downthe manner in which the director may be compensated for herservices, methinks the Severance pay won't constitute part of themanagerial remuneration package.Section II of Part II of Schedule XIII, dealing with remuneration incase of companies having no or inadequate profits, requires certainconditions to be filled by the company if it wants to avail of theceilings specified in part B therein. The company is required togive a notice to the shareholders at the AGM containing amongstother things "Disclosures" about the following:[(i) All elements of remuneration package such as salary, benefits,bonuses, stock options, pension, etc., of all the directors;(ii) [……](iii) Service contracts, notice period, severance fees;]Although the Department of Company Affairs has used the word "etc"after listing some elements of remuneration in (i), the factthat "severance fees" is specifically mentioned in point (iii) belowsuggests that the DCA does not think severance fees to be managerialremuneration.Please note that the fact that your company is not in losses and hasadequate profits does not have any bearing on the aboveinterpretation.

Thanks,

CA Sanjeev Bedi

--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=XzWq3v8dHSzgZOGCJUo4sMhKdv-yUrGHm-3iFpe0XBV3m-IxHNmtX6GjWHhwSe4aZMN26vYtNdHwRo-TXwVAVkj_P9iIwK6PlxzI, Khandelwal Santosh wrote:>> I have a query regarding managerial remuneartion. While computingmaximum managerial remuneration as per section 198 of companies Actshall we take into consideration the severance compensation paid tothe retiring MD. Let me clarify this by the following example:> Suppose the normal managerial remuneration of the old MD whoretired on 31 MArch 2007 is Rs 40(this comprises of his normal Basicand Allowances from April Y1 to March Y2.He is also given aseverance compensation of Rs 30 for his VRS. Now in order to computemaximum managerial remuneration which is 5% of Net profit computedin accordance with section 349 shall we also include severancecompensation of Rs 30 or we take into consideration only his normalannual remuneration Rs 40.

Please advise.>>

Thanks>

Santosh Khandelwal