Article explains How to calculate Median Remuneration under Companies Act, 2013 read with Rule 5(1)(iii) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Annual Filing of the Companies is the next important step marked in the compliance list. Similarly, the Directors Report arose out of a general move for greater need for transparency in corporate governance.
Now, to convene AGM, the Directors Report is required to be a part of Annual Report of the Company as per Section 134 of the Companies Act, 2013. However, there is no restriction to put any matter in the Director’s report but there are some mandatory contents that are required to be stated therein. One such content is the median remuneration. In this article, we shall discuss about the provisions and calculation of median remuneration.
In accordance with Section 197 of the Companies Act, 2013 read with Rule 5(1)(iii) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, “the percentage increase in the median remuneration of employees in the financial year” is required to be stated in the Board Report.
The word median in a layman’s language means “middle value” and the intention is to basically arrive at the average salary being paid to an employee in comparison the salaries being paid to the Director/KMP.
CALCULATION OF MEDIAN REMUNERATION
Step 1: Arrange the total remuneration of employees data in ascending order (preferable in a excel sheet so that calculation are not required to be done manually) in the following manner:
| S. No. | Name of Employee | January (in Rs.) | March (in Rs.) | December (in Rs.) | Total |
| 1. | A | 10,000 | 10,000 | 15,000 | 35,000 |
| 2. | B | 15,000 | 15,000 | 16,000 | 46,000 |
Now, the total salary of A and B comes out to be Rs. 35000/- and Rs. 46000/- respectively (inclusive of all perquisites and allowance) and the total salary being paid shall be taken likewise of all employees to be thereafter arranged in an ascending order.
Step 2: Select the date and apply the following formula in the excel sheet to arrive at the median value:
=Median (A2: A10)
Here, A2 and A10 denote the cell values till which the date of remuneration to employees is punched. Alternatively, median remuneration can be calculated manually as well:
♥ In case the number of employees is odd, then following formula is required to be applied:
Total employees + 1 ÷ 2
Example:
| S. No. | Name of employee | Remuneration (in Rs.) |
| 1 | A | 50,000 |
| 2. | B | 60,000 |
| 3. | C | 70,000 |
In this case, the median remuneration shall be Rs. 60,000 calculated as following:
Total employees + 1 is 3+1 i.e. 4. When we divide 4 by 2 we get 2.
♥ In case the number of employees is even, then following formula is required to be applied:
X = (Total employees) ÷ 2 and Y= X+1
Then, Median Remuneration = (X + Y)/2
Example:
| S. No. | Name of employee | Remuneration (in Rs.) |
| 1 | A | 50,000 |
| 2. | B | 60,000 |
| 3. | C | 70,000 |
| 4. | D | 80,000 |
In this case, the median remuneration shall be Rs. 65,000 calculated as following:
X= 4 ÷ 2 = 2 and Y = 2+1 = 3
Then, Median Remuneration = (60,000+70,000)/2 = Rs. 65,000
In conclusion, we can say that it is a very important disclosure w.r.t financials of the Company and the median remuneration shall be calculated with utmost sincerely and carefully as the same gives a bird eve view of the comparison of the average salary being paid to employees of the Company and the salary being withdrawn by the Directors thereof.
{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}
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