SECTION: 178 – NOMINATION REMUNERATION COMMITTEE & STAKEHOLDERS RELATIONSHIP COMMITTEE
Updated: Oct 7, 2022
INTRODUCTION:
Remuneration paid to administration is frequently a point of controversy between shareholders and management because shareholders don't get to see the company's performance until the financial statements are presented to them at the annual general meeting, and it is at that meeting that they are supposed to review and approve the remuneration to be paid to managing directors or managers.
Additionally, remuneration is an above-the-line item in the profit and loss account, limiting the potential profits for distribution to shareholders. As a result, they aim to ensure that managerial people are compensated appropriately and by their performance.
WHICH COMPANIES ARE REQUIRED TO FORM A NOMINATION REMUNERATION COMMITTEE?
The Provision [Sec-178] of the Companies Act,2013 demonstrates the Nomination Remuneration Committee. The following categories of companies are required to form a Nomination Remuneration Committee of the Board:
Listed organizations;
All public organizations acquiring a paid-up capital of ten crore rupees or more;
All public organizations possessing a turnover of one hundred crore rupees or more;
All public organizations, developing in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.
SCOPE OF THE COMMITTEE:
To know the individuals who are competent to become Directors and who may be nominated in senior management according to the conditions established and propose their appointment and removal to the Board.
To provide the criteria for identifying a director’s qualifications, positive characteristics, and integrity.
To review and recommend the remuneration of the Managing Director and other Whole-time/Executive Directors, subject to Shareholder approval.
To propose a policy recommendation to the Board regarding remuneration for Directors, Key Management Personnel, and other staff. Such remuneration policy shall be published in the Company's Annual Report.
FORMATION OF THE NOMINATION REMUNERATION COMMITTEE:
CHAIRMAN:
The Chairman of the aforementioned Committee must be an Independent Director. If the Chairman of the Committee is unable to attend a committee meeting, the current members may designate another Independent Director to serve as Chairman for that meeting. In the event of an equality of votes, the Chairman shall not have a deciding vote on any topic. The topic will be brought before the board for approval in this situation.
MEMBERS:
The Committee will be comprised of at least three members nominated by the Board. The Committee's members must be Non-Executive Directors, with at least one-half of them being Independent Directors.
QUORUM
There should be a minimum of two independent members in the quorum of meetings of the Committee.
DUTIES, RIGHTS & RESPONSIBILITIES:
The Committee is authorized to conduct the following reviews:
a. Salary, privileges, pension plans, a retirement package, detachment compensation, and the structure of the remuneration package, including the proportion of fixed and variable components, annual/mid-term increments, merit rewards, special payments, and so on, of the Managing / Executive Director and Key Managerial Personnel.
b. Modifications to the salary package, appointment terms, notice period, termination fees, and recruitment, retention, and termination policies and processes:
To suggest to the Board, the shortlisted individuals who are qualified in becoming directors and may be appointed in senior management, as well as their appointment and/or dismissal.
When necessary, the Committee may seek outside lawyers or another independent professional opinion on problems relating to salary, incentives, and other industry practices.
The Committee has the authority to obtain any information it requires about every employee, and management has been told to comply with any request made by the Committee.
The Committee shall consider if any, succession policies for both executive and non-executive Directors.
The Committee's Chairman may be available at the Annual General Meeting to address shareholders' questions.
WHAT IS A STAKEHOLDER RELATIONSHIP COMMITTEE?
The Stakeholder Relationship Committee (Committee) is a Board of Directors Committee. The primary goal of this Committee is to resolve the problems of the company's security holders. Stakeholder rights are extremely important in company law for publicly traded corporations.
The listed firm shall form a Stakeholders Relationship Committee to investigate various elements of shareholders, debenture holders, and other security holders' interests.
WHO CAN CONSTITUTE A STAKEHOLDER RELATIONSHIP COMMITTEE?
A Stakeholders Relationship Committee shall be formed by the Board of Directors of a company that has more than 1,000 shareholders, debenture holders, deposit holders, and other security holders at any time during a fiscal year and shall consist of a chairperson who is a non-executive director and such other members as the Board may decide.
The Stakeholders Relationship Committee will review and resolve the company's security holders' grievances.
COMPOSITION OF STAKEHOLDER RELATIONSHIP COMMITTEE:
According to the SEBI Listing requirements, the Committee must have at least three directors, one of whom must be an independent director, and in the event of a listed firm with issued SR equity shares, at least two-thirds of the Committee must be independent directors.
The Committee's chairperson shall be a non-executive director, and the Board may nominate other members. According to the Regulations, the Committee must convene at least once a year. The chairperson or, in his absence, any other member of the council authorized by him in this capacity shall attend the company's general meetings.
ROLE OF A STAKEHOLDER RELATIONSHIP COMMITTEE
The Stakeholders Relationship Committee's role must be to review and resolve the issues of the listed company's shareholders, including concerns relating to:
· Non-receipt of the annual report
· Non-receipt of announced dividends
· Transfer of shares
The Stakeholders Relationship Committee is defined under the SEBI (LODR) Regulations, 2015.
1. Resolving shareholder issues, particularly those about:
Non-receipt of the annual report
Non-receipt of announced dividends,
Release of new/duplicate certificates,
Transmission of shares,
General meetings, etc.
2. Examine the actions taken to ensure that shareholders' voting rights are exercised effectively.
3. Examine the standard of service followed by the listed firms for a variety of services provided by the Registrar and Share Transfer Agent (RTA).
4. Examine the various procedures and activities implemented by the listed firms to decrease the number of unclaimed dividends and ensure timely receipt of:
Dividend warrants,
annual reports,
legal notifications,
by the company’s shareholders.
PENALTIES:
If any of the provisions of Section 178 are violated, then:
The firm/entity will face a fine of 5 lakh rupees,
Each officer of the company who is in default would face a fine of 1 lakh rupees.