Nomination & Remuneration Committee: Role & Requirements Under Companies Act

INTRODUCTION

The Nomination and Remuneration Committee (NRC) is a key committee of the Board of Directors in companies, particularly under corporate governance frameworks. Section 178 of The Companies Act, 2013 and Regulation 19 of The SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 deals with the provisions of Nomination and Remuneration Committee.

According to Section 179 of The Companies Act, 2013 read with rule 6 of The Companies (Meetings of Board and its Powers) Rules, 2014, following Companies are required to constitute the Nomination and Remuneration Committee (NRC):

1. Every Listed Company, and

2. Following classes of companies:

• • all public companies with a paid-up capital of 10 crore rupees or more;
  • all public companies having turnover of 100 rupees or more;
  • all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

Note: The paid-up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

ROLE OF NOMINATION AND REMUNERATION COMMITTEE

Following are the roles of Nomination and Remuneration Committee:

1. The NRC shall formulate the criteria for determining the qualifications, positive attributes and independence of a director.

2. Identify persons who are qualified to become Directors and who may be appointed in senior management.

3. For every appointment of an independent director, the Nomination and Remuneration Committee shall evaluate the balance of skills, knowledge and experience on the Board and on the basis of such evaluation, prepare a description of the role and capabilities required of an independent director. And for the purpose of identifying suitable candidates, the Committee may:

• • use the services of an external agencies, if required;
  • consider candidates from a wide range of backgrounds, having due regard to diversity; and
  • consider the time commitments of the candidates.

4. Recommend to the Board Appointment or removal of director as the case may be.

5. Recommend to the Board a policy, relating to the remuneration for the Directors, key managerial personnel and other employees.

6. Formulation of criteria for evaluation of performance of independent directors and the board of directors.

COMPOSITION OF THE NOMINATION AND REMUNERATION COMMITTEE:

FRQUENTLY ASKED QUESTION (FAQ) ON FORMATION OF THE NOMINATION AND REMUNERATION COMMITTEE (NRC):

1. Can the Chairperson of the company chair the Nomination and remuneration Committee?

No, the chairperson of the company whether executive or non-executive cannot become the chairperson of NRC.

2. Can an executive director become the chairperson of NRC?

No, as per the provision of section 179 of The companies Act, 2013 the Chairperson of NRC shall be non-executive director.

3. Can an executive director become the member of the NRC?

No, the executive director cannot become the member of the NRC but there is one exception to this provision. As per first proviso of Section179(1) of The Companies Act, 2013 and Regulation 19(2) of SEBI(LODR), 2015. The chairperson of the listed entity, whether executive or non- executive, may be appointed as a member of the Nomination and Remuneration Committee and shall not chair such Committee.

4. How many meeting the Nomination and Remuneration Committee (NRC) shall be convened during a financial year?

The NRC shall meet at least once in a financial year.

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Disclaimer: The entire contents of this document have been prepared based on the relevant provisions and the information available at the time of its preparation. Although utmost efforts have been made to provide accurate and authentic information, it is recommended to cross-check the relevant sections and rules under the Companies Act, 2013 for a better understanding.