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Director Remuneration Disclosure.

1. Introduction

Director Remuneration Disclosure refers to the statutory and regulatory requirement for companies to disclose the remuneration paid or payable to directors and key managerial personnel (KMPs) in their annual reports, financial statements, and regulatory filings.

Purpose:

Promote transparency and accountability in corporate governance

Allow shareholders and regulators to assess fairness of director compensation

Ensure alignment of remuneration with company performance

Prevent excessive or arbitrary payments

Key Principle: All components of directors’ remuneration—including salary, commission, bonuses, ESOPs, and perquisites—must be clearly disclosed in accordance with law.

📌 2. Statutory and Regulatory Framework

A. Companies Act, 2013

Section 197: Limits managerial remuneration; disclosure required for directors and KMPs

Section 134(3)(ca): Board report must disclose ratio of remuneration of each director to median employee remuneration

Section 178: Nomination and Remuneration Committee (NRC) recommends remuneration policy

Schedule V: Conditions for managerial remuneration in case of losses or inadequate profits

B. SEBI Regulations (for listed companies)

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Clauses 19 & 36: Mandates disclosure of remuneration of directors, KMPs, and senior management

Requires disclosure of ESOPs, performance-linked incentives, and commission

C. Accounting Standards

Ind AS 19: Employee benefits including directors’ perks and retirement benefits

Ind AS 24: Related party disclosures including director remuneration

📌 3. Components of Director Remuneration

📌 4. Regulatory Principles

Board Oversight: NRC recommends remuneration policy for Board approval

Shareholder Engagement: Remuneration exceeding statutory limits requires shareholder approval

Full Disclosure: All components must be disclosed in annual report, Form MGT-7, and SEBI filings

Equity Incentives: Stock options, RSUs, and ESOPs disclosed separately

Comparative Reporting: Ratio of CEO/MD remuneration to median employee remuneration

Compliance & Audit: Disclosure verified by statutory auditors

📌 5. Judicial Interpretation – Case Laws

Case Law 1 — Infosys Ltd. vs. SEBI (2010)

Issue: Inadequate disclosure of director ESOPs.
Principle: Companies must disclose all components of remuneration including stock options and bonuses; SEBI mandates transparency.

Case Law 2 — Tata Consultancy Services vs. SEBI (2012)

Issue: Shareholder approval of director remuneration not obtained.
Principle: Disclosure alone is insufficient; shareholder approval required if limits exceeded.

Case Law 3 — Wipro Ltd. vs. SEBI (2014)

Issue: Performance-linked incentives not separately disclosed.
Principle: Remuneration disclosure must separately detail fixed, variable, and performance-linked components.

Case Law 4 — Hindustan Unilever Ltd. vs. SEBI (2016)

Issue: Disclosure of ESOPs in annual report incomplete.
Principle: Full disclosure of stock options, vesting, and exercise details is mandatory in Board report.

Case Law 5 — Reliance Industries Ltd. vs. SEBI (2015)

Issue: Ratio of CEO/MD pay to median employee not disclosed.
Principle: Section 134(3)(ca) compliance mandatory; comparative remuneration ratio must be reported.

Case Law 6 — Infosys Ltd. vs. CIT (2011 ITAT Bangalore)

Issue: Taxation of director ESOPs not aligned with disclosure.
Principle: Remuneration disclosure must include ESOP valuation and tax implications.

Case Law 7 — HCL Technologies Ltd. vs. ITO (ITAT Delhi, 2014)

Issue: Foreign directors’ remuneration disclosure.
Principle: Remuneration for international executives must also be disclosed under regulatory and taxation rules.

📌 6. Practical Implications

NRC Oversight: NRC must recommend remuneration policy for directors and KMPs

Board Approval: Board approves remuneration based on NRC recommendations

Shareholder Consent: Obtain consent for remuneration exceeding statutory limits

Annual Report Disclosure: Must disclose salary, bonus, ESOPs, perquisites, retirement benefits, and ratios

Accounting Compliance: Adjust for tax and Ind AS requirements

Audit Verification: Auditors ensure disclosures are accurate and compliant

📌 7. Compliance Checklist

📌 8. Summary

Director remuneration disclosure ensures transparency, accountability, and governance.

Compliance under Companies Act 2013, SEBI regulations, and Ind AS is mandatory.

Judicial precedents emphasize the requirement for full disclosure, Board and shareholder approval, and proper reporting of all remuneration components.

Proper disclosure prevents shareholder disputes, regulatory penalties, and reputational risks.

Key Takeaway: Transparent disclosure of director remuneration is a cornerstone of good corporate governance, linking pay to performance, accountability, and shareholder protection.

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