Uday Kotak-led SEBI committee on corporate governance has capped the remuneration of executive promoter director at ₹5 crore a year or 2.5 per cent of net profit, whichever is higher. Overall, the salary of all executive promoter-directors at 5 per cent of net profit. In both the cases, company needs to take shareholder approval through a special resolution.

The committee noted various cases of disproportionate payments made to executive promoter directors as compared to other executive directors and felt that this issue should be subjected to greater shareholder scrutiny.

On analysis of managerial remuneration based on the data available, the committee observed that certain non-executive directors (generally promoter directors) were receiving disproportionate remuneration from the total pool available as against other non-executive directors.

If the salary paid to a single non-executive director exceeds 50 per cent of the pool being distributed to the non-executive directors as a whole, then the company has to take shareholder approval with promoter getting the right to vote, it said.

Material subsidiary

In a bid to enhance the monitoring of material subsidiaries, the committee revised the definition of the term “material subsidiary” to mean a subsidiary whose income or net worth exceeds 10 per cent (from the current 20 per cent) of the consolidated income or net worth of the listed entity in the immediate preceding accounting year. It also recommended one independent director of the parent company to be on the board of foreign and domestic subsidiary.

The Uday Kotak committee also capped royalty paid by the listed entity to its parent company at 5 per cent of consolidated turnover with approval from shareholders on a ‘majority of minority’ basis. This sub-limit of 5 per cent will be considered within the overall 10 per cent limit to determine material related party transactions.

The panel has recommended that the company should consolidate related-party transactions and reported it on its website within a month after its half yearly financial results.

In addition, the Committee observed that that certain promoters/promoter group entities are not categorised as related parties and thereby transactions with such persons are not getting categorised as RPTs.

20% norm

The Committee recommended that all promoters/promoter group entities that hold 20 per cent or above in a listed company to be considered “related parties” and recommended that disclosures of transactions with promoters/promoter group entities holding 10 per cent or more shareholding be made annually and on a half yearly basis (even if not classified as related parties).

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