Companies need Central Govt approval to pay over 10% of net profit to directors

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Registered companies in India can’t pay more than 10% of net profit as remuneration to board-level directors overall without the government’s approval, the Ministry of Corporate Affairs said today.

The total remuneration to be paid to all the board level directors including the CEO of a company, having more than one whole time director or manager, is up to 10% of the net profit, Minister of State for Corporate Affairs R P N Singh said in a reply to the Rajya Sabha.

The Companies Act prescribes ceilings on the remuneration of CEOs (Chief Executive Officers), subject to various conditions, he said.

On whether some companies are paying more than the prescribed ceiling to their CEOs and to provide details of such companies and the action taken against them, he said companies may pay more than the prescribed ceiling to their CEOs holding board-level positions with the approval of the central government.
According to the relevant section of the Companies Act, the total remuneration paid to a board-level CEO of a company having only one whole-time director or a manager is up to five% of the net profit, the minister said.
He further said that in case of companies having inadequate profit or making losses, the remuneration is determined as per the relevant schedule of the Companies Act.