Median Remuneration - Companies Act, 2013

The basic intent behind the disclosure requirement of ‘Median Remuneration’ is to justify the average salary being paid to an employee as compared to the salary being paid to the Directors. As per section 197 (12) of the Companies Act, 2013, every listed company is required to disclose, the ratio of the remuneration of each director to the median employee’s remuneration, in the

Board’s report. Further as provided under rule 5 (1) (i) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every listed company is required to disclose the ratio of the remuneration of each director to the median remuneration of the employee of the company for the financial year. In this article, we look at the requirement for disclosing Median Remuneration under the Companies Act, 2013 in detail

Meaning Of The Word ‘MEDIAN’

The meaning of the word ‘median’ has been provided under explanation to rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. As per the said explanation to rule 5, the expression ‘median’ means the numerical value separating the higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging all the observations from the lowest value to the highest value and finally picking the middle one. Further, in case there is an even number of observations, the median shall be the average of the two middle values.

Calculating Median Remuneration

Combine all the data relating to the salary of all the employee in the ascending order in the financial year. It must be noted that salary should be inclusive of all the allowances and perquisites calculated on the basis of cost to the company. Total number of employee is ‘ODD’ – In case of ‘ODD’ number of employee, calculation of Median Remuneration shall be based on following formula – (Total number of employee + 1)/2 Following is the illustration for ‘ODD’ number of employee –

Sr. No.	Name of the Employee	Amount
1	Mr Ashwin	1,00,000
2	Mr Vivek	1,50,000
3	Mr Arnav	2,00,000
4	Mr Bhavin	2,50,000
5	Mr Chandan	3,00,000
6	Ms Shivani	3,50,000
7	Mr Ashish	4,00,000

Going through the formula – Median remuneration = 7 + 1/2 = 4 Hence Median Remuneration in the present illustration would be remuneration paid to 4

th employee i.e. INR 2,50,000/-.

Total number of employee is ‘EVEN’ –

The working of median remuneration would be a bit complicated in case the number of the employees is ‘EVEN’. In the case of ‘EVEN’ number of employee, following 3 formula needs to be applied in order to arrive at median remuneration – X = (Total Number of Employee)/2 Y = (X + 1) Median Remuneration = (X + Y)/2 Following is the illustration for ‘EVEN’ number of employee –

Sr. No.	Name of the Employee	Amount
1	Mr Ashwin	1,00,000
2	Mr Vivek	1,50,000
3	Mr Arnav	2,00,000
4	Mr Bhavin	2,50,000
5	Mr Chandan	3,00,000
6	Ms Shivani	3,50,000
7	Mr Ashish	4,00,000
8	Mr Deepak	4,50,000

X = (Total Number of Employee)/2 X = 8/2 = 4 Thus the value of X would be the remuneration of 4

th employee i.e. INR 2,50,000/- Y = (X + 1) Y = (4 + 1) = 5 Thus the value of Y would be the remuneration of 5th employee i.e. INR 3,00,000/- Median Remuneration = (X + Y)/2 Median Remuneration is above case would be = 2,50,000 + 3,00,000/2 = 2,75,000.

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Frequently Asked Questions

Common questions about Median Remuneration.

The purpose of disclosing median remuneration is to provide transparency and justify the average salary being paid to an employee as compared to the salary being paid to the directors of the company. It helps stakeholders understand the remuneration practices of the company.

According to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, 'median' refers to the numerical value that separates the higher half of employee remuneration from the lower half. It is calculated by arranging all employee salaries in ascending order and picking the middle value.

When the number of employees is odd, the median remuneration is calculated by using the formula: (Total number of employees + 1)/2. The remuneration of the employee at this position in the ascending order list is considered the median remuneration.

When the number of employees is even, the median remuneration is calculated using three formulas: X = (Total Number of Employees)/2, Y = (X + 1), and Median remuneration = (X + Y)/2. The average of the remuneration values at positions X and Y in the ascending order list is considered the median remuneration.

The employee remuneration should be inclusive of all allowances and perquisites, calculated on the basis of the cost to the company. This ensures a comprehensive representation of the total remuneration package.

Disclosing the ratio of director remuneration to median employee remuneration helps stakeholders assess the fairness and reasonableness of the compensation practices within the company. It promotes transparency and accountability in remuneration decisions.

As per Section 197(12) of the Companies Act, 2013, and Rule 5(1)(i) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every listed company is required to disclose the ratio of the remuneration of each director to the median remuneration of the employees in the Board's report.

The disclosure of median remuneration benefits stakeholders by providing valuable insights into the company's compensation practices. It helps them evaluate the fairness and competitiveness of the remuneration structure, and assess the company's commitment to responsible and equitable compensation policies.

The article focuses on the requirement for listed companies to disclose median remuneration. While it does not explicitly mention the requirements for unlisted companies, they may have different reporting obligations based on the relevant laws and regulations.

Yes, the median remuneration calculation can be influenced by outliers or extreme values in employee remuneration. This is because the median is calculated based on the middle value in the ordered list of remuneration values, which can be skewed by unusually high or low remuneration outliers.