Under the Companies Act 2013: Section 178(1) read with Rule 6 of the Companies (Meetings of the Board and its Powers) Rules, 2014 and Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, provides that the board of directors of following classes of companies is required to constitute a Nomination and Remuneration Committee –

  • Every listed public company;
  • All public companies having:
  • Paid-up share capital of 10 crore rupees or more;
  • Turnover of 100 crore rupees or more;
  • In aggregate, outstanding loans, borrowings, debenturesand deposits exceeding 50 crore rupees or more.

Note:1) Section 178 shall not apply to Section 8 companies and specified IFSC public companies.

2) According to Rule 4the following unlisted public company are not covered in the category of companies that have to constitute nomination and remuneration committee.

  • A joint venture
  • A wholly-owned subsidiary; and
  • A dormant company as defined under section 455 of the companies act, 2013

Under SEBI (LODR) Regulations, 2015: Regulation 19(1) of the SEBI Listing Regulations, 2015 provides that the Board of all listed entities shall constitute the Nomination and Remuneration Committee.

  • Composition

 

Section 178 Regulation 19 of SEBI (LODR) Regulations, 2015
Ø  The Nomination and Remuneration Committee shall comprise of 3 or more non-executive directors out of which not less than one half shall be independent directors:

 

Ø  Provided that the chairperson of the company may be appointed as a member of the Committee but shall not chair suchCommittee.

 

Ø  The chairperson of the committee will attend the general meeting of the company and in his absence, he will authorise any other member to attend the general meeting of the company

 Ø  The BOD shall constitute the nomination and remuneration committee as follows: The Committee shall consist minimum of 3 directors.

·       all directors of the committee must be non-executive directors; and

·       At least 50% of the directors shall be independent directors and in case of a listed entity having outstanding SR equity shares, 2/3rd of the committee shall comprise independent directors.

 

Ø  The Chairperson shall be an independent director.

 

 

Ø  The quorum for a meeting of the committee shall be either 2 membersor 1/3rd of the members of the committee, whichever is greater, including at least 1 independent director in attendance.

 

Ø  The Chairperson of the nomination and remuneration committee may be present at the AGM, to answer the shareholders’ queries;

 

Ø  The committee shall meet at least once a year.

 

Functions of the Nomination and Remuneration Committee

 Under Companies Act 2013

The Nomination and Remuneration Committee shall fulfill the following purposes:

  • Recognize persons who are qualified to become directorsand who may be appointed in senior management,
  • Prepare the criteria for determining positive attributes, independence and qualifications of a director.
  • While preparing the policy, the Committee shall take into consideration the following points:
  1. 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;
  2. relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
  3. remuneration to directors, key managerial personnel 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:

(2) SEBI (LODR) Regulations, 2015

The Committee shall perform the following functions:

  • Formulation of the criteria for determining positive attributes, independence and qualifications, of adirector and recommend to the board of directors a policy relating to, the remuneration of the Directors,key managerial personnel and other employees;
  • Prepare criteria for evaluation of the performance of the board of directors(BOD) and independent directors (ID);
  • Frame a policy on diversity of the board of directors(BOD);
  • Recognize persons who are qualified to become directors and who may be appointed in seniormanagement and recommend to the board of directors (BOD) theirappointment and removal.
  • Whether to extend or continue the term of appointment of the independent director (ID), on the basis of thereport of performance evaluation.

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