Nomination and Remuneration Committee and Stakeholders Relationship Committee

The Nomination and Remuneration Committee plays a vital role in identifying individuals who are suitable for the role of Directors and senior management positions, based on established criteria. It is responsible for evaluating their qualifications, integrity, and overall suitability for appointment. The Committee then makes recommendations to the Board regarding their selection or removal.

Additionally, the Committee sets the framework for assessing the competencies, ethical standards, and positive attributes of directors. It also reviews and recommends the remuneration structure for the Managing Director and other Executive Directors, ensuring alignment with shareholder approvals.

The Committee is also tasked with formulating a remuneration policy for Directors, Key Managerial Personnel (KMP), and other employees. This policy, once finalized, is published in the Company’s Annual Report to maintain transparency.

Formation of the Nomination and Remuneration Committee

Chairperson:

The Committee must be led by an Independent Director. If the designated Chairperson is unable to attend a meeting, the existing members may elect another Independent Director to preside over that session. Unlike other voting processes, in case of a tie, the Chairperson does not have the deciding vote; instead, the matter is escalated to the Board for resolution.

Members:

The Committee should consist of at least three non-executive directors appointed by the Board, with at least half of them being Independent Directors.

Quorum:

For a meeting to be valid, a minimum of two independent members must be present.

Duties, Rights & Responsibilities

The Committee is empowered to undertake the following responsibilities:

• Reviewing and structuring salary, perks, pension plans, retirement benefits, severance packages, and the remuneration framework, including fixed and variable pay components, periodic increments, and incentives for Executive Directors and Key Managerial Personnel.
• Evaluating and recommending changes to salary structures, appointment terms, notice periods, termination policies, and related contractual obligations.
• Shortlisting and recommending qualified candidates for directorial and senior management positions, including appointment and removal decisions.
• Seeking external expert opinions when necessary to align remuneration strategies with industry best practices.
• Accessing necessary employee-related information for decision-making, with management being required to cooperate with Committee requests.
• Assessing and advising on succession planning for both Executive and Non-Executive Directors.
• Ensuring the Chairperson of the Committee is available during the Annual General Meeting to address shareholder queries regarding remuneration policies.

Frequently Asked Questions (FAQs)

1. What is the role of the Nomination and Remuneration Committee?

The Committee establishes criteria for assessing the qualifications, attributes, and independence of directors. It also formulates a remuneration policy for directors, key managerial personnel, and employees, which is then recommended to the Board.

2. What are the responsibilities of the Remuneration Committee?

It determines the salary, compensation packages, and benefits for executive directors and senior management. Additionally, it advises the Board on the remuneration structure for non-executive directors.

3. How many members are required in the Nomination and Remuneration Committee?

The Committee must have at least three non-executive directors, with at least half of them being independent. The Chairperson must also be an Independent Director.

4. Who is eligible to be a member of the Committee?

Members are appointed by the Board and serve at its discretion. The Committee must have at least three directors, all of whom should be non-executive, with at least two-thirds being independent.

5. What is the purpose of nomination in corporate governance?

Nomination refers to the process of identifying suitable candidates for board positions and other key roles to ensure effective governance and decision-making.

6. Who appoints the Remuneration Committee?

The Board, upon the recommendation of the Nomination and Governance Committee, appoints the members. The Committee must include at least three independent, non-executive directors.

7. What are the different types of remuneration?

Remuneration can be categorized into three types:

• Fixed salary: A predetermined amount paid annually.
• Hourly wages: Compensation based on the number of hours worked.
• Commission-based pay: Earnings linked to individual or company performance.

8. How is remuneration structured?

Remuneration may be classified as direct (fixed salary, bonuses, incentives, and commissions) or indirect (variable components depending on company performance and employee contributions).

Bibliography

• Section 178, The Companies Act, 2013
• Ramaiya, Guide to the Companies Act (19th ed. 2020)
• T Ramappa, Commentary on the Companies Act, 2013 as Amended by the Companies (Amendment) Act, 2015

This article is presented by CA B K Goyal & Co LLP Chartered Accountants, your trusted partner in audit and compliance solutions. For expert assistance, feel free to contact us.