Nomination and Remuneration Committee
The Nomination and Remuneration Committee (NRC) is a mandatory board sub-committee under the Companies Act, 2013 and SEBI LODR that oversees the appointment, remuneration, and performance evaluation of directors, key managerial personnel, and senior management.
The Nomination and Remuneration Committee (NRC) was institutionalised as a mandatory board committee in India through the Companies Act, 2013 (Section 178) and is further governed by Regulation 19 of SEBI's LODR Regulations, 2015. Its core purpose is to bring objectivity, transparency, and independence to the processes of director appointment and executive compensation — areas historically prone to insider influence in promoter-driven Indian companies.
The NRC must consist of at least three non-executive directors, with at least half being independent directors. The chairperson of the committee must be an independent director. The committee is responsible for formulating criteria for determining qualifications, positive attributes, and independence of directors, and recommending candidates for board positions. It also recommends the remuneration policy for directors, key managerial personnel (KMPs), and senior management, including performance-linked incentives.
The NRC plays a central role in director performance evaluation — it must formulate criteria for evaluating the performance of every director and the board as a whole. Effective boards use a structured, externally facilitated evaluation process where NRC recommendations carry significant weight.
Remuneration of executive directors, including salary, variable pay, commissions, and ESOPs, must be recommended by the NRC before approval by the board and shareholders. SEBI and the Companies Act prescribe specific limits on executive remuneration as a percentage of net profits, and any deviations require shareholder approval via special resolution.
Investors should pay close attention to NRC disclosures in the annual report, particularly the remuneration policy and the details of executive compensation. Disproportionate pay relative to company performance, large severance packages, or excessive ESOPs without performance hurdles can indicate governance weaknesses. Proxy advisory firms routinely flag NRC-related issues in their shareholder meeting recommendations.