Remuneration payable to directors including any managing or whole time director is determined either by the Articles of Association or a resolution passed by the company in general meeting, but this will be subject to the provisions of sections 198 and 309 and Schedule XIII.
Section 198 lays down the overall limit of managerial remuneration at 11% of the net profits of the company while Schedule XIII lays down the administrative ceilings as to payment of managerial remuneration. The limit of 11% does not include any fee payable to the directors for attending the meeting of the Board.
A director, who is a whole time or a managing director of the company, may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by other.
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In any case, his remuneration shall not exceed 5% of the net profits of the company. In case the number of such directors is more than one, the remuneration shall not exceed 10% of the net profits for all of them taken together [Sec. 309 (3)].
A director, who is not a whole time or a managing director of the company, may be paid remuneration either:
(i) By way of monthly, quarterly or annual payments with the approval of the Central Government; or
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(ii) By way of commission, if the company by special resolution authorises such payment.
Provided that remuneration paid to such director, or where there is more than one such director to all of them together, shall not exceed:
(i) one per cent of the net profits of the company, if the company has a managing or a whole-time director or a manager; or
(ii) three per cent of the net profits, if the company has no manager, managing or whole-time director [Sec. 309 (4)].
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A director, who is in receipt of any commission from the company and who is either a whole-time or a managing director of the company, cannot receive any commission or remuneration from any subsidiary of such company [Sec. 309 (6)].
The remuneration to a director shall include any remuneration paid to him for services rendered by him in any other capacity except when:
(a) The services rendered are of a professional nature; and
(b) In the opinion of the Central Government, the director possesses the requisite qualifications for the practice of the profession [Sec. 309 (J)].
In addition, a director may receive remuneration by way of fee for each meeting of the Board, or a committee thereof, attended by him [Sec. 309 (2)].
Increase in Remuneration. The remuneration of directors including whole-time or managing director cannot be increased in any way without the approval of the Central government. However, the fee payable to directors for attending meetings of the Board or committee thereof may be increased without the approval of the Central Government, provided the amount of such fee after such increase does not exceed the specified legal limits.
Excess Payment:
If any director draws/receives, directly or indirectly, by way of remuneration in excess of the above limits, he shall hold the excess amount in trust for the company and shall be bound to refund it [Sec. 309 (5A)]. The company shall not waive the recovery of any such amount unless permitted by the Central Government [Sec. 309 (5B)].
The net profits for the purpose of calculating remuneration payable to directors shall be computed in the manner laid down by sections 349 to 351 except that the remuneration of directors shall not be deducted from gross profits.
These restrictions do not apply to a private company unless it is a subsidiary of a public company.
Remuneration to a Manager:
1. The remuneration payable to a manager shall be subject to the overall limit imposed by section 198, i.e. 11% of the net profits.
2. Remuneration to the manager may be paid by way of either a monthly salary or a specified percentage of the net profits of the company or both.
3. In any case the total remuneration of the manager shall not exceed 5% of the annual net profits of the company.
4. Net profits for this purpose shall be computed in the manner provided in section 349 and 350 of the Act.