Note on Median Remuneration
Calculation as per Companies Act, 2013 and Companies (Appointment and
Remuneration of Managerial Personnel) Rules 2014
BY
CS D Hem Senthil Raj & CS K Vinoth
Introduction:
As
per Section 197 (12) read with Rule 5 (1) (i) of The Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014, the listed companies are
required to provide the disclosure of the ratio of the remuneration of each
director to the median remuneration of the employees of the company for the
financial year in the Board’s Report.
“Median” definition as per the Rules:
Means
the numerical value separating the higher half of a population from the lower
half and the median of a finite list of numbers may be found by arranging all
the observations from lowest value to highest value and picking the middle one.
If
there is an even number of observations, the median shall be the average of the
two middle values.
Calculating the Median Remuneration of the
Employees:
Step1: Consolidate the salary data of
all the employees in ascending order
(Financial Year).
Step2: Salary shall be inclusive of all
perquisites and allowances calculated on the basis of cost to the company.
If the number of employees is “ODD” then the median
remuneration shall be the salary payable to the resulting employee after
incorporating the below formula:
(Total
Number of Employees + 1)
--------------------------------------------
2
If
the number of employees is “EVEN” then the median remuneration shall be the
salary payable to the resulting employee after incorporating the below formula:
(Total Number of
Employees)
X= ----------------------------------------
2
Y = (X + 1)
Median Remuneration = (X +
Y)/2
Practical Example – If the Number
of Employees is (“Odd”)
|
S.No
|
Name
of the Employee
|
Amount
(INR)
|
|
01
|
A
|
3,00,000
|
|
02
|
B
|
3,50,000
|
|
03
|
C
|
4,00,000
|
|
04
|
D
|
4,50,000
|
|
05
|
E
|
5,00,000
|
Median Remuneration shall be
the remuneration payable to the employee number:
(Total
Number of Employees + 1) (5
+1) 6
-------------------------------------------- = ------------- = ---- = 3
2 2 2
The Median remuneration in the above
scenario shall be INR 4,00,000/-
Practical Example – If the Number of Employees
is (“Even”)
|
S.No
|
Name
of the Employee
|
Amount
(INR)
|
|
01
|
A
|
3,00,000
|
|
02
|
B
|
3,50,000
|
|
03
|
C
|
4,00,000
|
|
04
|
D
|
4,50,000
|
|
05
|
E
|
5,00,000
|
|
06
|
F
|
5,50,000
|
Median
Remuneration shall be:
(Total Number of
Employees) 6
X= ---------------------------------------- = ------ = 3rd Employee
Remuneration.
2
2
Y = (X + 1) = (3 + 1) = 4th Employee
Remuneration.
Median Remuneration = (X +
Y)/2 = (400000+450000)/2 = INR 4,25,000/-
The
Median remuneration in the above scenario shall be INR 4,25,000/-
DRAFT FORMAT OF DISCLOSURE TO BE MADE IN BOARD’S REPORT:
Format 1:
Ratio of remuneration of each
director to the median remuneration of the employees of the Company for the
Financial Year:
The
information required pursuant to Section 197 read with Rule 5 (1) (i) of The
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in
respect of ratio of remuneration of each director to the median remuneration of
the employees of the Company for the Financial Year are as follows:
|
S.No
|
Name
of the Director
|
Remuneration
Per
Annum
(INR)
|
Median
Remuneration
Per
Annum
(INR)
|
Ratio
(Remuneration of Director to Median Remuneration)
|
Remarks
|
|
01
|
|
|
|
|
|
|
02
|
|
|
|
|
|
Note: In case of remuneration is not payable to Director,
in such a case a company shall provide the above details in ‘Nil’
format.
Format: 2
Ratio of remuneration of each
director to the median remuneration of the employees of the Company for the
Financial Year:
The
information required pursuant to Section 197 read with Rule 5 (1) (i) of The
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in
respect of ratio of remuneration of each director to the median remuneration of
the employees of the Company for the Financial Year, will be made available for
inspection at its registered office of the Company during the working hours for
a period of twenty one days before the date of annual general meeting of the
company pursuant to Section 136 of the Companies Act, 2013 and members, if any
interested in obtaining the details thereof, shall make specific request to the
Company Secretary and Compliance officer of the Company in this regard.
FAQ’s:
Whether it is necessary to
include the Salary of Contract Laborers/Contract Employees of the Company for
calculating the median remuneration ?
The
Rules does not provide any clarifications regarding the types of employees to
be counted for computing the total no of employees to find the median, however
we feel that it could be more reliable if the company takes into account only
the permanent employees of the Company for arriving at a median for the ratio
calculation.
Whether[32] it is necessary to include the
details of permanent employees, who are serving the Company in the position of
employee for less than twelve months?
As
per the Rules, the Company is required to arrive at the median remuneration of
the employees of the Company on financial basis and it is not necessary for the
Company to include the details of employees serving the company below the
period of twelve months.
*****
BY
CS K VINOTH
CS D HEM SENTHIL RAJ
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