The Nomination and Remuneration Committee

Nomination and Remuneration Committee explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

If the audit committee is where an independent director checks the past, the NRC is where they shape the future — who joins the board, who runs the company, what they're paid, and whether anyone is honestly evaluated.

It is also the committee whose composition rules changed recently, and older checklists still carry the old number.

Required for every listed public company and public companies crossing ₹10 crore capital, ₹100 crore turnover or ₹50 crore borrowings. Under the Companies Act: three or more non-executive directors, at least half independent. Under SEBI, since 1 January 2022: all non-executive, at least two-thirds independent, with an independent chairperson. The company's chairperson may be a member but cannot chair it. Meets at least once a year.

Who must constitute one

Section 178(1) requires a nomination and remuneration committee for every listed public company and such other classes of companies as prescribed — the same rule thresholds as the audit committee:

• paid-up share capital of ₹10 crore or more; or
• turnover of ₹100 crore or more; or
• aggregate outstanding loans, borrowings, debentures and deposits of more than ₹50 crore.

Private companies are outside it.

Composition — and the change most checklists missed

The two-thirds requirement is new. SEBI raised it from one-half to two-thirds with effect from 1 January 2022. If your governance manual says "at least 50% independent" for a listed entity's NRC, it predates that change.

The practical effect on a small committee: a three-member NRC now needs two independent directors, not one. A four-member NRC needs three.

The chairperson rule is worth understanding rather than memorising. The chairperson of the company — executive or non-executive — may sit on the NRC as a member, but may not chair it.

The reason is direct. The NRC decides the remuneration of executive directors and senior management, and evaluates the chairperson's own performance. Letting the chairperson run that meeting would make the committee's most important functions self-referential.

What the NRC does: nomination

Section 178(2) and Part D of Schedule II together give it four nomination functions:

• Identify persons qualified to become directors and to be appointed in senior management, in accordance with criteria laid down, and recommend their appointment and removal.
• Formulate the criteria for determining qualifications, positive attributes and independence of a director.
• Devise a policy on board diversity.
• Specify the manner for effective evaluation of the performance of the board, its committees and individual directors — carried out by the board, by the NRC, or by an independent external agency — and review its implementation and compliance.

That last function was rewritten by the 2017 amendment. The NRC no longer performs the evaluation itself; it designs the process and checks that it's followed. A meaningful distinction: the committee owns the methodology, not the scoring.

For listed entities, Schedule II adds an explicit link to tenure: the NRC recommends whether to extend or continue the term of an independent director on the basis of the performance evaluation report. Which ties directly back to Schedule IV, where re-appointment must be based on that report.

What the NRC does: remuneration

Section 178(3) requires the NRC to recommend to the board a policy relating to the remuneration of directors, KMP and other employees.

Section 178(4) sets three tests that the policy must satisfy:

1. The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully.
2. The relationship of remuneration to performance is clear and meets appropriate performance benchmarks.
3. Remuneration to directors, KMP and senior management involves a balance between fixed and incentive pay, reflecting short and long-term performance objectives appropriate to the company's working and goals.

The policy must be placed on the company's website, with its salient features and the web address disclosed in the Board's report.

For listed entities, the NRC also recommends to the board all remuneration, in whatever form, payable to senior management — a wider remit than just directors.

One thing the NRC cannot fix: an independent director's own remuneration structure is set by statute. Sitting fees up to ₹1,00,000 per meeting, reimbursement of expenses, and a members-approved profit commission. No stock options, whatever the policy says.

The independent director's angle

Three things make this committee matter to an independent director personally.

You're inside the succession decision. The NRC identifies and recommends directors and senior management. That's where a board either refreshes itself or entrenches. If nominations reliably arrive pre-decided from the promoter, the committee isn't functioning, and the independent members are the only people positioned to say so.

You're designing your own evaluation. The NRC specifies the manner of evaluation, and the resulting report determines whether independent directors get a second term. A process designed to produce uniformly positive results protects nobody and tells the board nothing.

You're setting executive pay while being paid a sitting fee. That asymmetry is the design. It's also why an independent director on the NRC needs to be comfortable with genuine disagreement about the CEO's package — there is no version of this job where that conversation is comfortable.

Related requirements

Chairperson at general meetings. Section 178(7) requires the chairperson of each committee — or a member authorised by them — to attend the general meetings of the company. Regulation 19(3) provides that the NRC chairperson may be present at the AGM to answer shareholders' queries.

Stakeholders Relationship Committee. Section 178(5) requires a company with more than 1,000 security holders at any time during a financial year to constitute an SRC, chaired by a non-executive director, to consider and resolve security holders' grievances.

Penalty. Non-compliance with Sections 178(1) to (5) attracts a penalty on the company and on every officer in default.

Key takeaways

• Same thresholds as the audit committee, plus every listed public company.
• All members non-executive. Half independent under the Act; two-thirds under SEBI since 1 January 2022.
• Independent chairperson for a listed entity.
• The company's chairperson may be a member but cannot chair it.
• The NRC designs the evaluation process; it doesn't perform the evaluation.
• Re-appointment of independent directors flows from the evaluation report the NRC's process produces.
• The remuneration policy must be on the website, with salient features in the Board's report.

Read next

• Audit Committee: Composition, Powers and the Independent Director's Role
• Board Performance Evaluation: The Legal Requirement and How It's Done
• Independent Director Remuneration: Sitting Fees, Commission, No ESOPs
• Stakeholders Relationship Committee (Regulation 20)

Law stated as on 5 September 2026. For listed entities, build the committee to SEBI's standard — it is the stricter one on composition, chair and financial literacy.