Companies

No ceiling on executives pay if ESOP up to 0.5%

| Updated on: Aug 23, 2012

Executives’ remuneration will not face any government restrictions now if they hold a stake of up to 0.5 per cent in their company by way of shares allotted to them under ESOP or related schemes.

As per a latest circular by the Ministry of Corporate Affairs, an employee holding shares of up to 0.5 per cent of stake in the company under any scheme formulated for allotment of shares to employees, including ESOPs, will not be considered as having any interest in the capital of the company.

Accordingly, the remuneration to such companies would not require the central government approval, the MCA said.

As per the provisions of the Companies Act, firms making losses or having inadequate profit cannot pay their employees a remuneration exceeding Rs 4 lakh per month without the central government’s approval, if such executives hold any shares of the company.

This restriction also applies to remuneration of those employees who are related to directors or promoters of the company.

However, a number of representations were made to the ministry from various stakeholders, “pointing to the corporate practice of allocating shares by way of qualification shares and/or shares under any scheme for allotment of shares to the employees of the company including under ESOP,” the MCA said.

Consequently, the ministry has clarified that any employee holding shares up to 0.5 per cent of stake in the company under any scheme formulated for allotment of shares to employees, including ESOPs, will not be considered as having any interest in the capital of the company.

Published on August 23, 2012

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