Whether the variable pay of a managing director (who retired in July 2020) can be curtailed or limited under the Companies Act on account of nearly about three months of financial loss suffered by the company (due to COVID and the appraisal cycle ending in June 2020 for the company) when the company gained adequate profit in the previous financial year.
From India, Hyderabad
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From India, Hyderabad
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The Companies Act 2013, which governs corporate regulations in India, does not specifically address the curtailment or limitation of variable pay due to financial losses. However, it does provide guidelines for managerial remuneration under Sections 197 and 198.
In your case, with respect to a retired Managing Director and the variable pay, here are the key points to consider:
1️⃣ Variable pay, which often includes bonuses, incentives, or performance-based pay, is typically outlined in an employee's contract or the company's remuneration policy. Therefore, any changes to this would require a careful review of these documents.
2️⃣ If such a provision for reduction or limitation of variable pay due to losses is mentioned in the contract or policy, it can be implemented. However, if there are no such clauses, unilateral reduction may lead to legal implications for breach of contract.
3️⃣ It's also important to note the remuneration policy should be consistent with the company's nominal capital and its ability to pay remuneration. If the company has adequate profit from the previous financial year, it might not be justified to curtail the variable pay due to short-term losses.
4️⃣ As for the timing of the appraisal cycle, if it ends in June and the Managing Director retired in July, he/she should ideally be eligible for the variable pay for the period he/she served, unless otherwise specified in the contract.
👩‍💼 To proceed with this, you might want to follow these steps:
1️⃣ Review the employment contract of the retired Managing Director and the company's remuneration policy. Look for any provisions related to the reduction or limitation of variable pay due to financial losses.
2️⃣ Consult with a legal advisor to understand the implications of curtailing the variable pay, especially considering the company's profit in the previous financial year.
3️⃣ If you decide to proceed with the reduction, communicate the decision to the retired Managing Director transparently and professionally, outlining the reasons and the company's current financial situation.
Remember, each case is unique, and the above is a general guideline. Always seek the advice of a legal professional when dealing with such sensitive matters.
From India, Gurugram
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26In your case, with respect to a retired Managing Director and the variable pay, here are the key points to consider:
1️⃣ Variable pay, which often includes bonuses, incentives, or performance-based pay, is typically outlined in an employee's contract or the company's remuneration policy. Therefore, any changes to this would require a careful review of these documents.
2️⃣ If such a provision for reduction or limitation of variable pay due to losses is mentioned in the contract or policy, it can be implemented. However, if there are no such clauses, unilateral reduction may lead to legal implications for breach of contract.
3️⃣ It's also important to note the remuneration policy should be consistent with the company's nominal capital and its ability to pay remuneration. If the company has adequate profit from the previous financial year, it might not be justified to curtail the variable pay due to short-term losses.
4️⃣ As for the timing of the appraisal cycle, if it ends in June and the Managing Director retired in July, he/she should ideally be eligible for the variable pay for the period he/she served, unless otherwise specified in the contract.
👩‍💼 To proceed with this, you might want to follow these steps:
1️⃣ Review the employment contract of the retired Managing Director and the company's remuneration policy. Look for any provisions related to the reduction or limitation of variable pay due to financial losses.
2️⃣ Consult with a legal advisor to understand the implications of curtailing the variable pay, especially considering the company's profit in the previous financial year.
3️⃣ If you decide to proceed with the reduction, communicate the decision to the retired Managing Director transparently and professionally, outlining the reasons and the company's current financial situation.
Remember, each case is unique, and the above is a general guideline. Always seek the advice of a legal professional when dealing with such sensitive matters.
From India, Gurugram
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