Historical Context

The Government of India’s socialistic approach towards controlling managerial remuneration between 1960s and 1990s has been a painful chapter in the history of India’s company law. While the restriction applied only to those on the board of directors, the limits the then Department of Company Affairs had prescribed in its administrative guidelines under the Companies Act, 1956 in November 1969 was as low as INR 7,500 per month and further reduced to INR 5000 per month years later. Any payment beyond those limits required the Central Government’s approval, which was also a very cumbersome and time-consuming process. This led to the unhealthy practice of compensating Managing Directors and Executive Directors (“MD/EDs”) with cash reimbursements and many other inappropriate methods. Some MDs/ EDs also stepped down from the board to accept positions one level below the board. They were designated as presidents and vice presidents despite performing the role of the Managing Director.Continue Reading Managerial Remuneration – Should Promoters Be Disenfranchised?