Remuneration of Directors

The remuneration payable to the director of a company including any managing or whole time director shall be determined in accordance with provisions of sections 198 and 309 by the articles of the company by resolution or if the articles so require by a special resolution passed by the company in the general meeting. Remuneration can be paid either in terms of company’s articles or in accordance with resolution of the general meetings. Section 198 and 309 regulate the ceilings on managerial remuneration as under:

Over all maximum remuneration:

The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its directors and its manager in respect of any financial year shall not exceed 11% of the net profit of that company for that financial year computed in the manner laid down in section 349 (determination of net profits) and 350 (ascertainment of depreciation) of the Act. The remuneration of the directors shall not be deducted from the gross profits. Within the above limits of maximum remuneration a company may pay monthly remuneration to its managing or whole time director or to its manager.

The percentage aforesaid shall be exclusive of any frees payable to directors by way of for each meeting of the Board or a committee thereof attended by him.

Limits in case of managing or whole time director:

If in any financial year, a company has no profits or its profits are inadequate the company shall not pay to its directors (including any managing or whole time director) or manager by way of remuneration any sum (exclusive of any fees payable to directors for each meeting of the board of directors or committee thereof attended by him) except with the previous approval of the Central Government.

The remuneration payable to any director including managing or whole time director shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity. Any remuneration for services rendered by any such director in any other capacity shall not be so included if;
1) the services rendered are of a professional
2) in the opinion of the Central Government the director possesses the requisite qualification for the practice of the professional.

A director may receive remuneration by way of a fee for each meeting of the board or a committee thereof attended by him. A director may receive remuneration as a director and he may also get it in a capacity other than that of a director. Apart from this, no extra remuneration can be paid to directors for doing their duties.

A director who is either in whole time employment of the company or a managing director 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 the other. Except with the approval of Government, such remuneration shall not exceed 5% of the net profits for one such director and if there is more than one such director, 10% for all of them together. Monthly remuneration with or without a percentage share of the net profits is permissible only in the case of a managing director or manger or whole team of directors and not to any other director.

Limits in case of other directors: Remuneration to a director who is neither a managing director nor a whole time director, may be paid by way of a monthly quarterly or annual payment with the approval of the Central Government or by way of commission if the company by special resolution authorizes such payment. The special resolution shall remain in force for 5 years. It may be renewed for further periods of not more than 5 years at a time.
Source: Business law