May 31, 2023

In this age of extreme competition, too many business entities are chasing too few talented people. Hence, it has become a difficult task to recruit and then retain employees. This is especially true when it comes to the higher levels. Also, employee recruitment is a very time consuming and costly affair. Things go out of gear if a top level employee leaves and a replacement is not found soon. Although money is not always the top reason why people leave, it is one of the biggest factors. Companies were hitherto bound by the government regulation that prevented them from raising the cumulative salaries of their employees beyond the threshold of 11 percent of net profits without the permission of the ministry of corporate affairs. But this has now changed.

Companies that have not defaulted on payment of dues to a bank, other secured creditors and non-convertible debenture holders will now be able to raise the salaries beyond the threshold without seeking government permission by just getting a nod from the shareholders. This will also empower the shareholders. Defaulting companies however, will still have to seek government permission before seeking shareholder nod.

This is the latest move in a series of moves the government has taken recently to remove unnecessary hurdles in the working of good companies and in empowering shareholders. There are still many areas where companies need to take permission from the government. The ministry must identify these and do away with the ones that are not necessary. However, shareholder empowerment is meaningless if not accompanied by tightening of corporate governance rules as the views of minority shareholders are almost never given any importance in closely held companies and resolutions are pushed through by brute numbers.