Nomination and Remuneration Committee & Stakeholders Relationship Committee in Companies Act,2013

Nomination and Remuneration Committee (NRC) and Stakeholders Relationship Committee (SRC) under Sec.178 of the Companies Act,2013

CS-M.Kurthalanathan

The Companies Act, 2013 has mandated the constitution of Nomination and Remuneration Committee and also Stakeholders Relationship committee for certain classes of Companies, which was already recommendatory under clause 49 of the Listing agreement.

Applicability of Nomination & Remuneration Committee:

The Nomination and Remuneration Committee is applicable to the following classes of Companies:

·         

            Every Listed Company

·         

        Every other Public company-

o    Having Paid up capital of Rs.100 crores or more; or

o    Which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.200 Crores. 

Constitution of the Board:

The above mentioned classes of companies shall constitute the Nomination and Remuneration Committee consisting of –

3 or more Non Executive Directors out of which not less than one half shall be IDs.

Responsibilities of NRC:

The Nomination and Remuneration Committee shall-

·         Identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down,

·         Recommend to the Board their appointment and removal,

·         Carry out evaluation of every director’s performance.

·         Formulate the criteria for determining  qualifications, positive attributes and independence of a director and

·         Recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

 Formulation of NRC policy:

The Nomination and Remuneration Committee shall ensure that—

(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;

(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

(c) remuneration to directors, KMPs and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:

The policy shall be disclosed in the Board's report

Stakeholders Relationship Committee(SRC):

The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board

The Stakeholder Relationship Committee shall consider and resolve the grievances of security holders of the company.

The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.

Penalty for Non compliance:

Company	Fine which shall not be less than Rs.1,00,000/- but which may extend to Rs5,00,000/-
Officer	Imprisonment for a term which may extend to one year or Fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/- or with both.

The non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.

 ‘‘senior management’’ means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads.

 Listing Agreement Vs Companies Act,2013:

Listing Agreement	Companies Act,2013
The board may set up a remuneration committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference, the company’s policy on specific remuneration packages for executive directors including pension rights and any compensation payment.	The Nomination and Remuneration Committee shall formulate the criteria for determining  qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
The remuneration committee may comprise of at least three directors, all of whom should be non-executive directors, the Chairman of committee being an independent director.	The  Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors. The chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.
All the members of the remuneration committee could be present at the meeting	No such Provision
The Chairman of the remuneration committee could be present at the Annual General Meeting, to answer the shareholder queries. However, it would be up to the Chairman to decide who should answer the queries.	No such Provision

Action Points: 

1. For Listed Companies:

The name referred in the listing agreement & the Companies Act is different. The Listing agreement mentions it as "Remuneration Committee" while the Act refers it as "Nomination & Remuneration Committee". It is hoped that post the implementation of the Companies Act, listing Agreement will also be suitably amended and listing agreement also will refer the same name. Thereafter, the existing listed Companies can rename their committee as  "Nomination & Remuneration Committee".

2. For other Public Companies

They need to constitute both the Committees post the implementation of the Act.