{"id":33645,"date":"2024-11-25T10:55:51","date_gmt":"2024-11-25T05:25:51","guid":{"rendered":"https:\/\/www.kanakkupillai.com\/learn\/?p=33645"},"modified":"2026-04-08T18:13:02","modified_gmt":"2026-04-08T12:43:02","slug":"understanding-the-median-remuneration-under-the-companies-act","status":"publish","type":"post","link":"https:\/\/www.kanakkupillai.com\/learn\/understanding-the-median-remuneration-under-the-companies-act\/","title":{"rendered":"Understanding the Median Remuneration under the Companies Act"},"content":{"rendered":"

Median remuneration is one of the ways of corporate governance<\/strong> brought in the Company\u2019s Act of 2013 in India. It is a crucial factor when evaluating income equality in organizations. This provision aims to address the widening pay disparities in organizations and provides a clear overview of the remuneration practices structured within the company for stakeholders.<\/p>\n

This blog provides a closer look at median remuneration, its legal framework, and the practical steps involved in calculation, as well as the challenges companies face when implementing these provisions.<\/p>\n

Introduction<\/h2>\n

The underlying aim of the disclosure requirement of \u2018median remuneration\u2019 is to justify the average pay earned by the employee as contrasted with the pay given to the Directors. According to section 197 (12) of the Companies Act, 2013, every listed company is bound to disclose in the report of the Board the ratio of the remuneration paid to each director including those who may have undergone the procedure for resignation of director<\/a><\/b> during the fiscal year to the median remuneration of the employee.<\/p>\n

Moreover, according to Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the median remuneration of the employees of the company shall be included in the financial statement for each listed company under the same, and the ratio of the remuneration for each director.<\/p>\n

Understanding the Median remuneration<\/h2>\n

Usually, the term \u201cmedian\u201d means \u201cmiddle value<\/strong>\u201c; its function is to estimate the average wage that an employee can be expected to earn in relation to the director\u2019s pay.<\/p>\n

Every listed company shall be required to include, within its Board\u2019s Report for each financial year, the ratio of each director\u2019s remuneration to the median compensation of all employees.<\/p>\n

The meaning of the term\u00a0\u2018median\u2019<\/strong> has been explained under the explanation to Rule No. 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014.<\/span><\/p>\n

The explanation of Rule 5 defines the term \u2018median\u2019 as a numerical value that separates the upper half of a group from the lower half. Additionally, the median of a finite list of numbers is defined as the middle value, obtained by listing all the observations from the lowest to the highest value.<\/p>\n

Further, if the number of observations is also even, then the median will be the average of the two middle values. By understanding the importance of this requirement, enterprises can adopt effective leadership policies that promote equitable governance and transparency.<\/p>\n

Calculation of Median Remuneration of the Employees<\/h2>\n

As provided in Section 197(12) of the Companies Act, 2013, the following is the simple formula that can be used to calculate the payment relating to the median of employee pay.<\/p>\n

Step 1. Find the Median Remuneration<\/em><\/h3>\n

The first step is to determine the median salary of your employees. When you list all of your employees\u2019 pay in ascending order, the median is the middle amount.<\/p>\n