COMPENSATION & BENEFITS (DHRM401)

Assignment Set – 1

1. Explain concept of Compensation Management by briefly explaining the 3P

Parameters.

Compensation Management is an integral part of the management of the organization.

Compensation Management contributes to the overall success of the organization in several
ways. To be effective, the managers must appreciate the value of competitive pay, their human
resources, and have an investment view of payroll costs. We want to maintain pay levels that
attract and retain quality employees while recognizing the need to manage payroll costs.
Pay is a difficult topic of conversation in most organizations. In fact, the topic is altogether
taboo in many workplaces. It simply isn't discussed unless absolutely necessary. And, when it
is necessary, such as when a pay raise (or lack of one) must be explained to an employee, many
managers find themselves at a loss for words. As the dreaded date of such a discussion
approaches, managers may begin checking their sick time banks to see if they can disappear
for a day or two.
While it may be a touchy subject, pay is a critical factor in the work lives of employees. Jobs
are accepted or rejected based in part on starting salary and the opportunity for future increases
in pay. Employees compare their pay to that of others in the same line of work.They constantly
compare their pay level to their level of contribution, trying to determine whether the ratio of
give and receive is a fair one. While it may not be a frequent topic of open discussion,
employees think about pay often.
Approaches of compensation management
There are 3P approach of developing a compensation policy cantered on the fundamentals of
paying for
Position, Person and Performance
. Drawing from external market information and internal policies, this program helps establish
guidelines for an equitable grading structure, determine capability requirements and creation
of short and long-term incentive plans.
The 3P approach to compensation management supports a company's strategy, mission and
objectives. It is highly proactive and fully integrated into a company's management practices
and business strategy. The 3P system ensures that human resources management plays a central
role in management decision making and the achievement of business goals.
* Paying for position* Paying for person* Paying for performance
Because it is so important to employees, the issue of pay deserves to be clearly addressed. In
spite of their hesitance, managers are capable of dealing with this sometimes-difficult issue in
a professional and effective manner. By keeping the following basic points about pay in mind,
they can address virtually any pay-related topic with their employees in a professional and
productive manner.
Specificity is Key
Pay is a topic with many different shades and a variety of implications. Whenever approaching
the subject, it is important to work out the details beforehand so that specifics can be clearly
communicated. For the manager, this means that the increase amount is nailed down before
discussing a promotion with an employee. No chance of misunderstanding or false
expectations can be permitted. Far too often, managers are apt to discuss generalities. "It will
mean a good increase." What exactly does that mean in terms of the employee's monthly
budget? If care is not taken here, good news can become the source of conflict and resentment.
By the same token, if asked for a raise, the manager should request that the employee suggest
a specific number that he believes reflects his value. Once the employee provides that number,
the manager can do his homework and decide what, if anything can be done. The employee
can then be given a definitive response.
Pay is Relative
What one employee considers a fantastic increase maybe an insult to another? Each individual
has a unique set of creativity and competencies. Pay should be based on the performance,
position and the competencies/skills the person is having.
Pay is Not Created Equal
Various forms of pay have different purposes. The two most common forms of direct cash
compensation in most companies are base pay and bonus. Base pay is the annual salary or
hourly wage paid to an employee given the job he holds, while bonus is typically (or at least
should be) rewarded based on the achievement of a goal of the organization.
Discussions about bonus payments should be as specific as possible. This is the opportunity to
point out particular accomplishments that contributed to overall team or company success.
Even if the bonus is paid to all employees based on a simple overall company profit target, the
manager should use the opportunity to point out specifically how individual employees helped
achieve that target.
Distributing bonus checks presents a unique motivational opportunity for a manager. Handing
money to an employee while discussing actions and behaviours he would like to see repeated,
creates a powerful link between performance and reward.
Discussions about base pay increases can be a bit different. Most companies claim to link their
annual base pay increases to performance. In reality, however, base pay decisions take into
account a variety of factors, including the relative pay of others in the same job, the company's
increase budget, market practices and where the individual falls within his pay range. Even
when performance is a factor, the manager is faced with the difficult task of evaluating an entire
year's worth of activity and then categorizing it according to the percentage increase options
allowed by the budget. It becomes very difficult to pinpoint specific employee actions or
accomplishments as the reason for the increase.
For these reasons, it's appropriate for the discussion about base pay increases to be more general
and balanced. Both strengths and weaknesses of the employee should be addressed. The actual
increase is then based on an overall assessment, as opposed to a link with one or two specific
outcomes. Any other factors that impact the increase percent, such as budget or pay range
should be openly discussed as well.
'Why?' is Critical?
All organizations pay according to some underlying philosophy about jobs and the people who
do them. This philosophy may not be in writing, but it certainly exists. Pay may be treated in a
formal and structured manner at one company. At another, any appearance of structure is
intentionally avoided so that decisions can be made arbitrarily. Either way, the approach taken
reflects a fundamental belief about people, motivation and management.
Managers often want to view each individual as a separate case. It is important to understand,
however, that employees operate within a compensation system. A manager is wise to take the
time to learn as much as possible about his company's compensation system. This knowledge
will form the context for pay discussions and will go a long way toward helping the employee
make sense of what is said.
 2. Explain compensation management along with different components of
Compensation under both Indirect and Direct Compensation? Explain the process
of value-based compensation design with a structure.

Compensation refers to any payment given by an employer to an employee during their period
of employment. In return, the employee will provide their time, labour, and skills.
This compensation can be in the form of a salary, wage, benefits, bonuses, paid leave, pension
funds, and stock options, and more. Compensation is also sometimes referred to
as remuneration outside of the U.S. and Canada.
Understanding the different types of compensation is critical to creating an
attractive compensation package for your current employees. Not only will this help you retain
your top talent, but it will also help you attract new talent to your organization—as long as you
set yourself apart from your competition.
Conducting a compensation analysis and creating a solid compensation strategy is the
responsibility of HR and compensation & benefits professionals. Where there isn’t a Human
Resources team in place, this will usually often fall on the business owner or manager. If this
isn’t your area of expertise, using the right compensation metrics can go a long way.
Suppose you haven’t yet given much thought to your compensation and benefits strategy. In
that case, you’re potentially missing out on improving your employees’ overall happiness and
engagement, along with your employee retention figures and employer brand.
Compensation plans vary from country to country. For example, in the US, health benefits
often make up a large part of an employee’s compensation and benefits package. Whereas in
parts of Europe, parental leave, childcare, and lunch expenses are more common.
There are two main types of compensation:
Direct compensation (financial)
Indirect compensation (financial & non-financial)
Everyone involved in creating an employee compensation plan and pay structure must first
understand the different types of compensation. This is because it is the organization’s
responsibility to explain the compensation plan to all candidates and employees. It is especially
important during the hiring process, and performance and salary reviews. With so many
different options available within the main two types of compensation, employees can easily
become confused.

Direct compensation
Direct compensation is a financial (or monetary) form of compensation. Here are the four main
types of direct compensation:
Hourly
Hourly wages are often provided to unskilled, semi-skilled, temporary, part-time, or contract
workers in exchange for their time and labor.
Jobs where some employees receive hourly wage include the retail, hospitality, and
construction industries.
Employees who receive hourly wages are usually able to earn overtime pay. This pay consists
of any additional hours worked outside of their set contract.
When setting your employees’ wages, you need to be compliant with the local minimum wage
legislation.
Salary
Annual salaries are typically provided to most full-time employees or skilled employees and
those who fill management positions. A salary often indicates that the organization has invested
in this employee for the long-term future.
Examples of employees who receive a salary include teachers, accountants, doctors, and retail
and hospitality managers.
Both hourly wages and salary make up an employee’s base pay or base salary.
Commission
Commission is a common form of compensation provided to employees in sales roles. It will
usually be based on a predetermined quota or target. The higher the quota reached, the higher
the commission pay will be.
Commission rates are often based on various specified factors, including revenue and profit
margins.
Some employees will work on commission only or obtain a salary with commission.
Bonuses
Companies often offer bonuses to employees based on year-end business results or the
individual meeting their set goals. Sometimes, the decision is at the manager’s discretion.
Bonuses can be paid annually, quarterly, or even after the completion of each project.
Both commission and bonuses fall under incentive pay, along with piece rate, profit sharing,
stock options, and shift differentials.
However, bonuses can also be paid without an employee meeting a particular target. For
example, if the business has had a great year and decides to reward everybody. In this case, the
bonus would be classified as variable pay.
Tips are also a common form of compensation in people-based industries, particularly
hospitality.
Another umbrella of direct compensation is deferred pay which includes savings plans and
annuity.
Merit pay is often given to an employee who meets their targets or performs well in their role.
Indirect compensation
Indirect compensation is still a financial form of compensation since it has a financial value.
However, employees do not directly receive it in cash form. That’s why certain types of indirect
compensation are viewed as monetary, while others are deemed non-monetary. This often
varies between organizations.
Indirect compensation is often known as employee benefits or perks of the job.
Here are some common examples of indirect compensation.
Equity package
Equity as part of a compensation package essentially means the employee is offered equity
(ownership) in the company, either through shares of stock or the option to buy such shares.
An equity package is common at start-up companies. These businesses may be low on cash or
funding and need other incentives to attract and retain employees.
Stock options
This form of compensation entitles employees to purchase a set number of shares at a fixed
price after a certain period. This is different from an equity package because the employee will
not have any ownership in the company.
Many stock options require employees to work between three to five years before they can
access this compensation.
Benefits
Typical employee benefits usually include health insurance, life insurance, retirement plans,
disability insurance, legal insurance, and pet insurance.
Healthcare is a common benefit in the US, as discussed, since it’s expensive to purchase.
Whereas, in the UK, healthcare is free on the NHS.
Retirement funds and pension plans are also common benefits that employees look for when
considering a new role at a new organization.
A survey found that 48% of job seekers in the US said they would be more likely to apply for
a job that came with good benefits. So although the base pay you offer is important, thinking
about your overall compensation package is essential.
Non-monetary compensation
Non-monetary compensation includes benefits like:
 paid or non-paid time off
  flexi-time
 learning and development opportunities
 parental leave
 childcare
 company cars
 phones or laptops,
 and meals.
A survey by Fractl found American employees value healthcare most as a benefit. Still,
additional forms of indirect compensation, including extra vacation time, daycare, and tuition
reimbursement, also made the most-wanted list.

Total compensation
An employee’s total compensation consists of a compensation package made up of all the
applicable types of compensation listed above. The total compensation can (and will) often
include different rewards and benefits at different job levels.
A total compensation statement is helpful for employees. They get a clear idea of everything
they’re entitled to from the start and the different types of compensation on offer. For example,
splitting out base pay, bonuses, and commissions will help employees understand what they
are automatically entitled to and what they need to meet targets to earn.
You could arrange the compensation into two different columns: direct compensation and
indirect compensation. Or you could go a step further and split the compensation out into
different sub-categories within each of those—such as healthcare, a company car, stock
options, and a pension fund.

3. Explain the objective of Performance Management? Briefly explain the process of

Performance Management by depicting thru a flow chart.

Performance Management (PM), a popular management style, is a cyclical process that begins
with performance planning, continues with assessment or evaluation and ends with a
performance recognition.
Performance Planning:
During the planning stage of the performance management process, employees and managers
work together to set achievement goals and develop a PM strategy.
Performance Assessment (Evaluation):
During the assessment, it takes feedback from co-workers and clients into consideration to
make an annual evaluation of the employees' performance.

Performance Recognition:
Recognition is a process to recognize the employee's accomplishments. In this stage,
employees and supervisors can analyse areas that need improvement and how to make
improvement.
Performance management is the process of continuous feedback and communication between
managers and their employees to ensure the achievement of the strategic objectives of the
organization.
The definition of performance management has evolved since it first appeared as a concept.
What was once an annual process is now transitioning to continuous performance management.
The goal is to ensure that employees are performing efficiently throughout the year, and in the
process, address any issues that may arise along the way that affect employee performance.
The performance management process or cycle is a series of five key steps. These steps are
imperative, regardless of how often you review employee performance.
1. Planning
This stage entails setting employees’ goals and communicating these goals with them. While
these goals should be disclosed in the job description to attract quality candidates, they should
be communicated once again when the candidate becomes a new hire.
Depending on the performance management process in your organization, you may want to
assign a percentage to each of these goals to be able to evaluate their achievement.
2. Monitoring
In this phase, managers are required to monitor the employees performance on the goal. This
is where continuous performance management comes into the picture. With the right
performance management software, you can track your teams performance in real-time and
modify and correct course whenever required.
3. Developing
This phase includes using the data obtained during the monitoring phase to improve the
performance of employees. It may require suggesting refresher courses, providing an
assignment that helps them improve their knowledge and performance on the job, or altering
the course of employee development to enhance performance or sustain excellence.
4. Rating
Each employees performance must be rated periodically and then at the time of the
performance appraisal. Ratings are essential to identify the state of employee performance and
implement changes accordingly. Both peers and managers can provide these ratings for 360-
degree feedback.
5. Rewarding
Recognizing and rewarding good performance is essential to the performance management
process, as well as an important part of employee engagement. You can do this with a simple
thank you, social recognition, or a full-scale employee rewards program that regularly
recognizes and rewards excellent performance in the organization.

Assignment Set – 2

4. Define methods, systems and process of job evaluation? Explain the concept of
Equity at both Internal & External level.

Job evaluations are a step-by-step process to determine how much money a position should
earn. There are different methods of job evaluation, but the point of each method is determining
the value the position brings to the company. This ensures the salary is equal to the work. The
HR department performs job evaluations based on the role rather than on the employee who
holds the position. This typically occurs when a company is new or adding additional roles.
Job evaluation methods
There are two main types of internal job evaluations methods: qualitative and quantitative.
Qualitative methods, such as job ranking and classification, are faster. But quantitative
methods, such as factor comparison and point factor, consider the skills and responsibilities
each role requires. There is also an external job evaluation method called market pricing. To
help you determine which is the best option for you, consider the following descriptions o f
each job evaluation method:
Job ranking
This method requires you to rank each role in a hierarchy based on the value they bring to the
company or how difficult the role's duties are. Job ranking is a good job evaluation method for
smaller companies as it is simple and you can consider up to 100 jobs. It is also a good method
for reducing positions as you can pair similar roles together when ranking them and choose to
keep the one that has the biggest impact on the company. The job ranking method has
limitations as it is subjective, so combining it with a quantitative method can help make the
results more accurate.
Job classification
The job classification method first requires you to develop a grading system or classification
method to help you sort roles. For example, you could create the following four categories:
executives, skilled workers, semiskilled workers, and unskilled workers. Then, sort each role
into a category, helping you determine the salary for each position in that category. This method
is also subjective and it can be hard to fit every unique role into a category.
Market pricing
Market pricing is an external job evaluation method. It requires you to determine a role's salary
based on the amount other companies are paying employees in the same position. To determine
the amount other companies are paying, you can look through third-party compensation
surveys. This allows you to create a competitive wage for your employees. Market pricing
overlooks internal equity. This means an employee may receive a lower salary than their
colleagues or that their work demands if the market rate for their role is low. To counteract this,
combine market pricing with one of the internal job evaluation methods. Related: How To Do
Market Research With 6 Guided Steps (With Types)
Point factor
With the point factor method, you evaluate jobs by assigning each role points and then rank
them. Start by developing a detailed point system. For example, every skill a position requires
could be a point, or each job responsibility could be a point. Once you have your point system,
you can go through each role and assign it a total number of points. Then, rank the jobs from
the highest number of points to the lowest to help you determine their salaries.
Factor comparison
The factor comparison method is a combination of the job ranking and point factor methods.
Start by ranking each job based on certain factors, such as the number of skills each role
requires or the knowledge candidates need to have. Then, assign these factors points. The total
number of points each role has determines the job's ranking.
How to create a job evaluation process
Here are some of the common steps to take when creating a job evaluation process:

1. Have a planning meeting

To start the job evaluation process, set a meeting or workshop to discuss the scope and approach
of the job evaluation. In this initial stage, we need to know the following questions:
What is our budget for this process?
How long will it take?
Who participates and what are their roles?
What method of job evaluation are we using?
What roles are we evaluating?
How will we collect data?
What is our communication plan (i.e. will we meet every week or update each other via email)?
It may take more than one meeting to go through each of these questions, but it is important to
avoid rushing this stage. Discussing and planning your job evaluation process can make it more
efficient. Related: What Is a Performance Improvement Plan? (With an Example)
2. Design and develop the plan
The next phase consists of designing and developing your job evaluation plan. You need to
determine the exact terms for how you're going to evaluate each role. For example, if you used
the point method, you can create your point system in this design and development stage. You
can also collect and analyse data about the roles you're discussing, such as their job descriptions
or market pay. Related: How To Develop a Strategic Business Development Plan
3. Categorize roles in company
Using the results from your research and analysis in the second stage, you can categorize jobs,
rank them, and draft a pay structure. This step may take the longest as you have to create and
update your rankings constantly until you're happy with the list. If you have jobs that are a
challenge to fit into certain categories or benchmarks, you may need to discuss them with your
team separately to determine a ranking for them.
4. Communicate and implement structure
Once you have a pay structure, you're happy with, you can implement it. If you have existing
employees whose pay structure changed, you need to communicate those changes with them.
You can do this by preparing individual letters, scheduling individual meetings, or even
scheduling a team briefing to discuss the job evaluation you performed. Some employees may
be unhappy with the changes, so it's important you listen to their concerns. Offer them an
opportunity to appeal your decision to show that you want to make the company's pay structure
as fair as possible.

Internal equity refers to fairness of pay among current employees working for the same
company and performing the same or similar jobs. An analysis of internal equity ensures that
fairness is maintained throughout the organization based on similar responsibilities,
performance, knowledge, skills, and experience. A good review is contingent on accurate job
analyses and descriptions, not just job titles (which may be inflated), to provide the appropriate
comparators. Pay grades are an example of a process that is designed to ensure internal equity.
These structures ensure that individuals in an organization are compensated in a consistent
manner relative to their peers, supervisors, and reports.
External equity refers to fairness of pay against the external market. External equity compares
what the company is willing to pay for talent versus what outside organizations competing for
the same talent are willing to pay. It provides a basis for competitive job offers, salary
adjustments, and salary structures. Equity exists when employees are rewarded fairly in relation
to those who perform similar jobs in other organizations.
Both internal and external equity factors are important tools used to define and implement a
solid compensation strategy, resulting in effective management of employee total rewards.
With the majority of expenses attributable to labour costs, consideration of both is vital to
providing fair, equitable compensation and the ability to attract and retain the best talent.

5. Define concept of Voluntary Retirement Scheme (VRS) and reasons for Adopting
VRS. List Merits & Demerits of VRS?

Voluntary Retirement Scheme (VRS) is an initiative that companies use to reduce their
workforce by asking the employees to retire earlier. The normal retirement age in India is
between 58 to 60 years. However, employees who have completed ten years of service or are
above 40 years may retire by opting for VRS.

VRS is offered to employees by a company, and sometimes employees willingly retire from
their services before their retirement date. Any employee at any level (with few exceptions),
with sufficient work experience in an organisation can opt for voluntary retirement; this is
applicable for both public and private sector organisations.
This can be a cost-cutting measure by the organisation; additionally, many employees opt for
voluntary retirement for personal choices. However, it should be noted that an employee
retiring voluntarily cannot apply to another organisation in the same industry or under the same
management.
A voluntary retirement scheme comes with specific terms and conditions. An employee must
be above 40 years of age and should have completed a minimum of 10 years of service in a
particular organisation, to be eligible for voluntary retirement. Private organisations can frame
different schemes; however, the schemes must conform to the guidelines under section 2BA of
the IT Act.
Additionally, as per Rule 48A of CCS (Pension) Rules, 1972, a government servant is qualified
to avail of VRS only after 20 years of continued service.
When implemented by an organisation or government institution, voluntary retirement will
result in an overall lower number of employees than before, and the vacancy cannot be filled
up. Public Sector Undertakings (PSUs) will have to take prior permission from the government
to practise such measures.
Features of VRS
Organisations cannot fill up the vacancies that come out after implementing VRS.
Retired employees cannot join any other functional organisation under the same management
or industry.
Employees who opt for VRS in a private-sector company should be a minimum of 40 years or
have served 10 years in that organisation.
Companies should pay off their employees all dues regarding Provident Fund and gratuity at
the time of VRS.
Companies offer assistance such as tax consultation and counselling at the time of retirement
to work out the whole process evenly.
Compensation of up to ₹5 lakhs under VRS is tax-exempt as per Section 10 (10C) of the
Income Tax Act, 1961. However, to avail of this benefit, the employee must claim it in the
same assessment year of receiving it.

Reasons for Adopting VRS:

Even if the Voluntary Retirement Scheme is a fair and just practice, companies can only imply
it under certain scenarios. They are as below:
When a company has a surplus workforce.
When the organisation faces intense competition in the market or significant economic
declination for quite some time.
During mergers and acquisitions, takeovers or joint ventures with foreign establishments.
When the products or technology of an organisation becomes outdated or redundant.

Merits & Demerits of VRS:

Here are some benefits that employees can avail by opting for VRS.
The payment of a significant amount of compensation upfront under VRS often motivates
employees to opt for early retirement.
In case of deteriorating health, employees may choose to avail VRS to get access to funds for
their treatment.
Poor job satisfaction is another primary reason individuals opt for VRS and quit their jobs.
By taking early retirement, an individual can spend more time with family.

However, VRS has certain drawbacks, such as it can put additional workload on existing
employees, if not managed properly. Efficient employees may leave the firm and thereby
reduce the skill base of the firm. It might create a sense of insecurity in the minds of employees
who did not opt for VRS.
 6. Explain the principles of Managerial Remuneration? Briefly elucidate important
features of Executive Compensation and elements of Managerial Remuneration.

‘Remuneration’ means any money or its equivalent given to any person for services rendered
by him and includes the perquisites mentioned in the Income-tax Act, 1961. Managerial
remuneration in simple words is the remuneration paid to managerial personals. Here,
managerial personals mean directors including managing director and whole-time director, and
manager.
Total managerial remuneration payable by a public company, to its directors, managing director
and whole-time director and its manager in respect of any financial year:

Condition Max Remuneration in any financial year

Company with one Managing director/whole time

5% of the net profits of the company
director/manager

Company with more than one Managing 10% of the net profits of the

director/whole time director/manager company

Overall Limit on Managerial Remuneration 11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time directors

1% of the net profits of the company if

For directors who are neither managing director or
there is a managing director/whole time
whole-time directors
director

3% of the net profits of the company if

If there is a director who is neither a Managing
there is no managing director/whole time
director/whole time director
director

The percentages displayed above shall be exclusive of any fees payable under section 197(5).
Until now, any managerial remuneration in excess of 11% required government approval.
However, now a public company can pay its managerial personnel remuneration in excess of
11% without prior approval of the Central Government. A special resolution approved by the
shareholders will be sufficient. In case a company has defaulted in paying its dues or failed to
pay its dues, permission from the lenders will be necessary.
When the company has inadequate profits/no profits: In case a company has inadequate
profits/no profits in any financial year, no amount shall be payable by way of remuneration
except if these provisions are followed.

Where the effective capital is: Limits of yearly remuneration

Negative or less than 5 Crores 60 Lakhs

5 crores and above but less than 100

84 Lakhs
Crores

100 Crores and above but less than 250

120 Lakhs
Crores

120 Lakhs plus 0.01% of the effective capital in

250 Crores and above
excess of 250 Crores

These restrictions do not apply to the sitting fees of the directors (managing director, whole
time director/manager).
Remuneration in excess of the aforementioned limits may be paid only if a special resolution
is passed by the shareholders.
Remuneration as per the above limits may be paid if:
Managerial personnel are functioning in a professional capacity
The managerial person does not have an interest in the capital of the company/holding
company/subsidiary company either directly, or indirectly, or through any statutory structures
The managerial person does not have a direct/indirect interest or related to the directors
/promoters of the company/holding company/subsidiary company any time during the last 2
years either before/on/after the date of appointment
He/she is in possession of a graduate level qualification along with expertise and specialized
knowledge in the field in which the company mainly operates.
If any employee holds less than 0.5% of the company’s paid-up capital under any scheme
(including ESOP) or by way of qualification, for this purpose he/she is considered to not have
interest in the share capital of the company.
Determination of Remuneration: The remuneration payable to the director shall be
determined by:
The articles of the company
A resolution
Special resolution if articles require it to be passed in the general meeting
The remuneration payable as per these rules shall also include the remuneration payable to the
personals working in any other capacities. However, if the services are rendered in professional
a capacity and if the nomination and remuneration committee/Board of directors believes that
the director possesses the necessary qualification for the practice of the profession, exceptions
are possible.
Fees to directors: The directors may receive fees for attending meetings and such fees cannot
exceed the limits prescribed. Different fees for different classes of companies may be as
prescribed.
The fees can be paid:
a. Monthly
b. As a Specified Percentage of the Net Profits yearly
c. Partly by method (a) and partly by method (b)
Remuneration of independent directors: An Independent director shall be entitled to a sitting
fee, a reimbursement for participation in meetings and profit related commission as approved
by Board. However, he shall not be entitled to ESOP.
Excess Remuneration to be refunded: If any director receives any remuneration in excess of
the provisions of law, the same shall be refunded to the company or kept in trust for the
company. Such recovery shall not be waived unless permitted by the Central Government.
Disclosure by a listed company: Every listed company shall disclose the ratio of the
remuneration paid and the median employee’s remuneration along with other prescribed
details.
Insurance: When the company insures its personnel by providing protection against any act
done by them due to negligence, default, misfeasance, breach of duty, breach of trust, such the
premium paid for this insurance shall not be treated as part of remuneration except if the
director is proved guilty.
Any managing director/whole time director receiving commission from the company may also
receive a remuneration or commission from the holding or subsidiary of such a company
provided the same is disclosed in the board’s report
Penalty
Any person who contravenes these provisions shall be punishable with a minimum fine of Rs.1
Lakh and a maximum fine of Rs. 5 Lakhs.