Companies will no longer be required to seek approval of the government for raising the salaries of CEOs and directors once the the new company law comes into effect, Corporate Affairs Minister Salman Khurshid has said.
"Essentially, we are shifting from control to regulation, that's the basic theme (of the proposed Company Bill)...For CEO's salary coming to us for approval is not something the regulatory procedure called for," he told PTI.
Under the present Act, companies have to take approval of the government before raising salaries of directors.
"Let the shareholders decide, how much they want to pay someone but there must be disclosure, to us, to the shareholder, to the public at large," he added.
Commenting on the move, Diljeet Titus, senior partner with law firm Titus and Co, said: "Such archaic provisions (in Companies Act, 1956) are not in conformity with the liberalised market environment. However, some checks and balances must be put in place to prevent CEOs from extracting disproportionate compensation packages for themselves."
Expressing similar opinion, Aseem Chawla, partner, Amarchand Mangaldas, said, "This is a welcome move...It is most desirable that all proposals brought by the government are coherent with other laws, especially the Direct Taxes Code."
The G-20 meeting of finance ministers and central bank governors at London recently discussed the issue of high salary and bonuses being paid by banks and it may come up again at the Pittsburgh summit this week.
"They (companies) should not come to us for permission (for every small thing). Whatever can be done, should be known clearly; whatever can be done by the approval of shareholders should also be known and there should be transparent declaration and disclosure to the shareholders," Khurshid said.
The provision of seeking approval of the government for salaries of directors, Titus said, has outlived its utility and most of the proposals are cleared by the government in a routine manner without adequate scrutiny.
