## Median Remuneration – Companies Act

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# 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 4th employee i.e. INR 2,50,000/-.

1. 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 4th 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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