The Nomination and Remuneration Committee (NRC) is a core governance committee under the company law. It deals with two things. One is who gets appointed to leadership roles. And the other is how they are paid. It ensures that companies have capable leadership and that compensation remains structured and performance-linked.
However, the rules for this committee change depending on whether a company is listed or unlisted. Companies in India must comply with the Companies Act, 2013, while listed entities must also comply with the SEBI (LODR) Regulations, 2015.
Applicability of Nomination and Remuneration Committee
The requirement to constitute an NRC flows from the Companies Act, 2013 and the SEBI (LODR) Regulations, 2015. Both frameworks apply differently.
Under the Companies Act, 2013 (Section 178), the NRC is mandatory for:
- All listed companies
- Public companies meeting any of the following thresholds:
- Paid-up share capital of ₹10 crore or more
- Turnover of ₹100 crore or more
- Outstanding loans, borrowings, debentures or deposits of ₹50 crore or more
The Private companies are not required to constitute an NRC. And public companies below these thresholds are also excluded. Under SEBI (LODR) Regulations, the position is stricter. Every listed entity must constitute an NRC. It does not depend on size or financial position.
So the distinction is simple. The Companies Act applies conditionally. But SEBI LODR applies to all listed entities without exception.
Composition of the Committee
The composition of the NRC reflects its purpose. It must remain independent. And it must be capable of objective decision-making.
Under the Companies Act:
- Minimum three non-executive directors
- At least 50% must be independent directors
Under SEBI LODR:
- Minimum three directors
- At least two-thirds must be independent directors
- The chairperson must be an independent director
SEBI LODR sets a higher standard. It strengthens independence and reduces management influence in key decisions. SEBI pushes for this because listed companies have a bigger responsibility toward public shareholders.
Meetings of the Committee
The frequency of NRC meetings is not heavily regulated under the Companies Act. There is no fixed requirement. However, SEBI LODR prescribes a minimum of one meeting in a year. In practice, companies meet more often. This happens when there are appointments to be made or remuneration policies to be reviewed. So the actual frequency depends on business needs.
Quorum Requirements
The Companies Act does not specify a quorum for NRC meetings. Companies usually rely on internal policies. However, SEBI LODR provides clarity, mentioning that a quorum is two members or one-third of the total members, whichever is higher and at least one independent director must be present
Roles and Responsibilities under the Companies Act
The NRC plays a central role in leadership selection and compensation structuring. Its responsibilities under the Companies Act are clearly defined.
1. Identification and Appointment: The committee identifies individuals who are qualified to become directors or part of senior management. It recommends their appointment or removal to the Board.
2. Performance Evaluation Framework: It lays down how performance evaluation will be carried out. This includes the Board, board committees and individual directors
The committee is responsible for examining whether the Board, the NRC itself, or an independent third party conducts these assessments. It further oversees the effective execution and regulatory adherence of the entire appraisal system.
3. Criteria for Selection: The NRC formulates criteria for selecting directors. This includes qualifications, positive attributes and independence
4. Remuneration Policy: It recommends a remuneration policy for directors, key managerial personnel and other employees.
5. Principles Governing Remuneration: While designing remuneration, the NRC ensures remuneration is reasonable and sufficient to attract, retain, and motivate competent directors; there is a clear relationship between remuneration and performance, aligned with appropriate benchmarks and there is a balance between fixed pay and incentives. The structure must align with both short-term and long-term objectives.
Roles and Responsibilities under SEBI LODR
SEBI LODR expands the scope of the NRC. It introduces additional responsibilities, especially for listed entities.
1. Formulation of Criteria and Policy: The committee formulates criteria for qualifications, attributes and independence of directors. It also recommends a remuneration policy for the directors, key managerial personnel (KMP) and other employees.
2. Appointment of Independent Directors: The NRC plays a detailed role in this process. It evaluates the balance of skills and experience on the board, defines the capabilities required and ensures candidates meet these requirements. It may use external agencies if required. And it may consider diversity and time commitments before making recommendations.
3. Performance Evaluation: The committee formulates criteria for evaluating independent directors and the board. It ensures the evaluation process is objective and effective.
4. Board Diversity Policy: The NRC devises a policy on board diversity. The aim is to ensure a mix of skills, experience and perspectives.
5. Identification and Recommendation: It identifies and recommends individuals for roles of directors and senior management. It also recommends their removal where required.
6. Review of Independent Directors’ Tenure: The committee decides whether the term of independent directors should be extended. This is based on performance evaluation.
7. Remuneration of Senior Management: It recommends all forms of remuneration payable to senior management.
In simple terms, the NRC ensures that the right people are appointed and that they are paid in a fair and structured way.
Role of the Company Secretary
The Company Secretary supports the functioning of the NRC. The role is operational, but it is also compliance-driven.
Key responsibilities include:
- Sending notices and agendas for meetings
- Ensuring compliance with the Companies Act and SEBI regulations
- Assisting in drafting remuneration policies
- Maintaining documentation and minutes
- Advising on governance and legal requirements
- Facilitating communication between management and the committee
The committee functions smoothly when the Company Secretary is actively involved.
The Nomination and Remuneration Committee ensures structured leadership decisions. It focuses on both selection and compensation. Ensures competent leadership is in place. Links remuneration with performance and brings consistency in evaluation processes
The Companies Act lays the foundation but SEBI LODR strengthens independence and governance for listed companies. So the NRC is not just a compliance requirement. It is a key governance mechanism that shapes how companies are led.