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Monday, July 23, 2018

Draft company rules mandate rationale for high salaries,hikes

The government on Friday released the second set of draft rules for implementing the new Companies Act,2013.

Written by ENS Economic Bureau | Mumbai | Published: September 21, 2013 3:27:40 am

The government on Friday released the second set of draft rules for implementing the new Companies Act,2013,proposing to make private placement norms tougher,establishing vigil mechanism for directors,laying rules for filing class action suits and making executive pay disclosure norms stricter,among other things.

While the government has proposed to limit the number of investors in private placement schemes to 200 persons with a minimum investment size of Rs 50,000 each in a financial year,the rules suggest that it should be made mandatory for listed companies to give their rationale behind salaries and hikes given to top management personnel vis-a-vis the performance of the company.

“Private placement offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year… the value of such offer or invitation shall be with an investment size of not less than Rs 50,000 per person,” the draft rules said. Qualified institutional buyers and employees of the company being offered securities under Employees Stock Options are exempted from the limit.

Raising of money through the private placement route has been under the scanner of regulators for quite some time now,mainly after one such case of Sahara,which raised over Rs 24,000 crore by issuance of optionally fully convertible debentures through the private placement to more than three crore investors.

On executive pay,while a statement from a company’s board having names of employees having annual income of more than Rs 60 lakh has to be disclosed in the annual statements,“companies are also required to explain the relationship between average increase in remuneration and company performance”.

According to the draft rules,the ratio of pay of each director to the median pay of the employees needs to be disclosed. Listed firms will also be required to disclose the increase in pay of each director and CEO as well as the rise in the median employee pay.

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