Procedure for Constitution of Nomination and Remuneration Committee

Aakanksha Singhal

Aakanksha Singhal

Published on: Sep 20, 2021

Khushboo Sharma

Updated on: Oct 27, 2023

★★★★★(15 Rating)

20092

Introduction

Nomination and Remuneration Committee is one of the pivotal committees responsible for putting in place befitting parameters pertaining to-

• Qualifications, positive attributes and independence of a director; and
• Advise Board on remuneration policy for directors, key managerial personnel and other employees.

Section 178 of the Companies Act, 2013 and rules made thereunder read with Rule 19 of the SEBI (LODR) Regulations, 2015 explicitly provides the provisions for the constitution of Nomination and Remuneration Committee.

Mandatory Requirements

1. Following class of companies are obligated to constitute Nomination and Remuneration Committee as per the provisions of Companies Act, 2013 and SEBI (LODR) Regulations, 2015-
   • Every listed public company
   • Public Companies having paid up share capital of Rs. 10 crores or more
   • Public Companies having turnover of Rs. 100 crores or more
   • Public Companies having net total outstanding loans, debentures and deposits exceeding Rs. 50 crores
2. Minimum number of directors;
   • 3 or more non-executive directors out of which at least 1/2 shall be independent directors [as per the provisions of Companies Act, 2013]
   • Atleast 50% of the directors shall be independent directors and in case of a listed entity having outstanding SR equity shares, 2/3rd of the Nomination and Remuneration Committee shall comprise of independent directors [As per SEBI (Listing Obligation and Disclosure Requirment) Regulation 2015].
3. Nomination and Remuneration Committee shall meet at least once in a year.
4. Chairperson of the Nomination and Remuneration Committee shall be an independent director [In case of a listed entity, chairperson may be appointed as a member of the Committee and shall not chair such Committee].

Following Procedure is to be followed

1. Convene a Meeting of Board of Directors [As per section 173 & Secretarial Standard (SS-1)]
   • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
   • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
   • Hold a meeting of Board of Directors of the Company and pass the necessary Board Resolution
     • Approve the constitution of Nomination and Remuneration Committee
     • To authorize the Director or Company Secretary to sign and issue notice of the General Meeting and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
   • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
2. Constitution of Nomination and Remuneration Committee
   Pursuant to the approval of Board of Directors Nomination and Remuneration Committee shall be constituted.
3. Dissemination of Nomination and Remuneration Committee policy details on Website
   • Policies formulated by Nomination and Remuneration Committee shall be placed on company’s website and its salient features, changes therein and web address of the policy is to be disclosed in the Board’s report.
   • Listed entity shall disseminate all the information in accordance with Regulation 46 (2) (a) to (z) on its functional website and update any change in the content of its website within 02 working days from the date of such change in content.
4. Role of the Nomination and Remuneration Committee
   Role of the Nomination and Remuneration Committee shall include-
   • Formulating the criteria to assess the qualifications, positive attributes, performance and independence of a director and further recommending the Board policy pertaining to remuneration of the Directors, KMP, and other employees;
   • identify qualified persons for appointment as directors as per the criteria laid down and recommend to the Board for such appointments and removal. Also, for identifying such suitable candidates, Committee may;
     • use the services of external agencies, if required;
     • consider candidates from wide range of backgrounds; and
     • consider the time commitments of the candidates
   • put in place the process of effective evaluation for the performance of Board, its committees and individual directors;
   • reviewing the implementation and compliance of the remuneration policy within the organization;
   • devising a policy on diversity of board of directors;
   • assess the extension or continuation of the term of appointment of the independent director, on the basis of performance evaluation of independent directors.
   • Recommend to the Board all the remuneration payable in any form to the senior management.
   • Evaluating the balance of skills, knowledge and experience on the Board and on the basis of which a description of the independent director’s roles and capabilities shall be frabricated. Also, in pursuit of identifying suitable candidates, the Committee may:
     • use the services of external agencies, if necessary
     • consider candidates from a wide range of backgrounds and
     • consider the time commitments of the candidates.
5. Remuneration Policy
   The remuneration payable to the directors, KMP and other senior management shall be as per the provisions of section 197 and 198 of the Companies Act, 2013.