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ESOP Policy and Compensation Committee Governance

Reviewed by CA and CS Team, Patron Accounting LLP ICAI & ICSI Registered| 15+ Years Experience| Last Updated: Verify Credentials →

Covers: committee constitution, charter, ESOP policy, decision-rights mapping.

Fees: governance advisory from Rs 24,999 (Exl GST and Govt. Charges).

Framework: Section 178 of the Companies Act and SEBI LODR Regulation 19.

Best for: mid-to-late-stage companies professionalising governance.

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    What This Service Covers

    📌 TL;DR - ESOP Governance Services at a Glance

    We constitute a Section 178 Nomination and Remuneration Committee, draft its charter and your ESOP and remuneration policy, and map who decides what on equity. Board-ready governance.

    Put board-level governance around your ESOPs, before investors ask for it. Patron Accounting constitutes your Section 178 Nomination and Remuneration Committee, drafts the ESOP and remuneration policy, writes the committee charter, and maps decision rights so equity decisions are made the right way.

    As a company scales, ESOP decisions outgrow informal founder calls and need a board organ to own them. Section 178 provides that organ, the Nomination and Remuneration Committee, which formulates the remuneration policy, oversees ESOP grants, and signals governance maturity to investors. Patron Accounting builds the committee, the charter and the policy as a single advisory engagement.

    Content is reviewed quarterly for accuracy.

    What Is Compensation Committee Governance

    Compensation committee governance is the board framework that decides and oversees pay and equity, centred on the Section 178 Nomination and Remuneration Committee. It sets who approves ESOP grants and on what criteria.

    The NRC formulates the remuneration policy, recommends director and senior-management appointments, and oversees the balance of fixed and incentive pay, including ESOPs. The governance layer adds a charter defining the committee's powers, a written ESOP policy, and a decision-rights map allocating authority between the board, the committee and management.

    Key Terms for ESOP Governance:

    • NRC: the Nomination and Remuneration Committee, the board committee that owns pay and ESOP policy under Section 178.
    • Committee charter: the document defining the committee's purpose, composition, powers and meeting norms.
    • ESOP policy: the board-approved framework governing grant, vesting, exercise and forfeiture decisions.
    • Decision-rights map: a clear allocation of who recommends, approves and executes each equity decision.
    APL-05 ESOP Governance
    Mandated by Section 178 and SEBI LODR

    Who Needs This Service

    Companies that have outgrown informal equity decisions, or are required by law to constitute an NRC, need this governance layer.

    • Listed public companies, which must constitute an NRC under Section 178 and SEBI LODR.
    • Public companies above the paid-up capital, turnover or borrowings thresholds.
    • Growth-stage private companies adopting a committee voluntarily before listing.
    • Companies preparing for a funding round where investors expect board governance.

    Statutory anchor: under Section 178, every listed public company and prescribed public companies, those with paid-up capital of Rs 10 crore or more, turnover of Rs 100 crore or more, or aggregate loans, debentures and deposits exceeding Rs 50 crore, must constitute an NRC of three or more non-executive directors, at least half of them independent.

    Our Governance Advisory Services

    ServiceWhat We Do
    Committee ConstitutionWe constitute the Nomination and Remuneration Committee with the right mix of non-executive and independent directors.
    Committee Charter DraftingWe draft a charter defining the committee's purpose, powers, quorum and meeting frequency.
    ESOP and Remuneration PolicyWe draft the board-approved ESOP and remuneration policy, balancing fixed and incentive pay.
    Decision-Rights MappingWe map authority across the board, the committee and management for each equity decision.
    Meeting and Disclosure NormsWe set meeting cadence and the website-disclosure of the remuneration policy where required.
    Board and Investor ReadinessWe align the framework with investor and SEBI LODR expectations ahead of funding or listing.
    Our Process

    How the Engagement Works in 6 Steps

    From board assessment to an operational committee, we build the governance framework that owns your equity decisions.

    Step 1

    Assess the board

    We review board composition, director independence and current equity-decision practices.

    Composition Independence
    Board Assessed 01
    Step 2

    Constitute the committee

    We form the NRC with three or more non-executive directors, at least half independent.

    3+ non-exec Half independent
    Committee Formed 02
    Step 3

    Draft the charter

    We define purpose, powers, quorum, meeting frequency and reporting to the board.

    Powers + quorum Reporting
    Charter Drafted 03
    Step 4

    Write the policies

    We draft the ESOP and remuneration policy and put it up for board approval.

    ESOP policy Board approval
    Policies Written 04
    Step 5

    Map decision rights

    We allocate who recommends, approves and executes each grant, vesting and exercise decision.

    Recommend Approve / execute
    Rights Mapped 05
    Step 6

    Operationalise

    We set the meeting calendar, disclosure norms and the link to register and exercise execution.

    Meeting calendar Disclosure
    Operational 06

    Documents Checklist

    • Current board composition and director independence details.
    • Existing ESOP scheme and any draft remuneration policy.
    • Articles of Association and relevant board resolutions.
    • Prior committee charters or governance documents, if any.
    • Cap table and grant data for decision-rights mapping.
    • Investor or SEBI LODR governance expectations, where applicable.

    Why this matters before a round

    Investors expect a board organ to own equity decisions, not the founder alone. A constituted committee, a clear charter and a written ESOP policy signal governance maturity and de-risk diligence.

    Common Challenges and How We Solve Them

    ChallengeImpactHow Patron Accounting Solves It
    Equity decisions made informally by foundersNo defensible approval trailWe constitute an NRC and a charter so decisions sit with a defined board committee.
    No written ESOP or remuneration policyDiligence and audit gapWe draft a board-approved policy balancing fixed and incentive pay.
    Unclear who approves grants and amendmentsAuthority confusionWe map decision rights across board, committee and management.
    Committee composition not Section 178 compliantSection 178(8) penalty riskWe structure the right mix of non-executive and independent directors.

    Governance Advisory Fees

    Fee ComponentAmount
    Patron Accounting Professional FeesStarting from Rs 24,999 (Exl GST and Govt. Charges)
    Scope of the engagementCommittee constitution, charter drafting, the ESOP and remuneration policy, and decision-rights mapping
    Ongoing committee secretarial support and SEBI LODR alignmentQuoted on scope

    All fees and charges listed are indicative only and do not constitute a binding offer. Final amounts may vary depending on the volume of work and the complexity involved.

    Professional service charges for drafting, filing, and representation are separate from the statutory fees. The exact fee depends on the complexity of the case, disputed amount, and number of hearings required. Contact us for a detailed quote.

    Get a free ESOP Governance consultation - Call +91 945 945 6700 or WhatsApp us. No-obligation assessment.

    Time Taken

    StageEstimated Timeline
    Full governance engagement (board assessment to approved charter and policy)2 to 4 weeks
    Committee constitution where directors are already in placeFaster

    We schedule around board meeting dates. The timeline depends on board availability and the number of approval cycles, so early instruction keeps the engagement on track ahead of a round or listing.

    Key Benefits

    Why Use a Professional

    Compliant composition

    Section 178 compliant committee composition, avoiding the Section 178(8) penalty.

    Defensible policy

    A defensible charter and ESOP policy that stand up in due diligence.

    Clear decision rights

    Clear decision rights, so grants and amendments are approved correctly.

    Investor-ready

    Governance maturity that investors and acquirers expect to see.

    Trusted by Boards and Growth Companies

    10,000+ Businesses | 4.9 Google Rating | 50,000+ Documents Processed | 15+ Years

    Patron Accounting LLP is a CA and CS firm with 15+ years advising boards on committee constitution, charters and corporate governance.

    With offices in Pune, Mumbai, Delhi and Gurugram, Patron Accounting serves businesses across India, both in-person and remotely.

    Companies Act vs SEBI LODR Committee Norms

    AspectCompanies Act 178SEBI LODR Reg 19
    Applies toListed + prescribed publicEvery listed entity
    Members3+ non-executive3+, all non-executive
    IndependentAt least one-halfAt least 50%
    ChairCannot be company chairIndependent director
    MeetingsAt least once a yearMore frequent

    Related Services

    Governance sits above ESOP execution. See our ESOP management and compliance services for scheme administration, our ESOP corporate filings for the statutory register and forms, and ESOP management and compliance services for exercise and cap-table events.

    For board appointments and the wider calendar, see appointment of director and private limited company compliance. See also the full ESOP services hub.

    Legal and Compliance Framework

    Governing provision: Section 178 of the Companies Act 2013 requires every listed public company and prescribed public companies to constitute a Nomination and Remuneration Committee of three or more non-executive directors, at least one-half independent.

    Applicability: the prescribed thresholds are paid-up capital of Rs 10 crore or more, turnover of Rs 100 crore or more, or aggregate loans, debentures and deposits exceeding Rs 50 crore. Private companies are not mandated, and Section 8 and specified IFSC public companies are exempt.

    Listed entities: SEBI LODR Regulation 19 requires all directors of the committee to be non-executive, at least half independent, and the committee to be chaired by an independent director.

    Penalty: under Section 178(8), contravention makes the company liable to a penalty of Rs 5 lakh and every officer in default to Rs 1 lakh.

    Authoritative sources: the Ministry of Corporate Affairs (Section 178, committees), the Companies Act and Rules, SEBI (LODR Regulation 19), and the ICSI (secretarial standards, governance).

    What is the Nomination and Remuneration Committee?

    The Nomination and Remuneration Committee, or NRC, is the board committee that owns appointments and pay policy under Section 178 of the Companies Act 2013. It identifies and recommends directors and senior management, formulates the remuneration policy balancing fixed and incentive pay, and oversees ESOP and equity decisions. It must have three or more non-executive directors, at least half independent.

    Which companies must constitute an NRC?

    Under Section 178, every listed public company must constitute an NRC, along with public companies that have paid-up capital of Rs 10 crore or more, turnover of Rs 100 crore or more, or aggregate loans, debentures and deposits exceeding Rs 50 crore. Private companies are not mandated, although many growth-stage companies adopt a committee voluntarily to professionalise governance before a funding round or listing.

    Comp committee private company ke liye zaroori hai?

    Nahi, private company ke liye Section 178 ke tahat NRC mandatory nahi hai. Lekin growth-stage private companies funding ya listing se pehle voluntarily committee bana leti hain, taaki ESOP aur pay decisions board level par sahi tarah ho aur governance maturity dikhe.

    What does the NRC do for ESOPs?

    The NRC owns the ESOP and remuneration policy at board level. It frames the criteria for grants, recommends and oversees the plan, and ensures the balance of fixed and incentive pay is reasonable. Routing ESOP grants, vesting terms and amendments through the committee gives equity decisions a defensible governance trail that investors and auditors expect.

    Who can chair the committee?

    The committee must consist of three or more non-executive directors, with at least one-half independent under the Companies Act. The company chairperson, whether executive or non-executive, may be a member but cannot chair the committee. For listed entities, SEBI LODR Regulation 19 goes further and requires the committee to be chaired by an independent director.

    How often must the committee meet?

    Under the Companies Act, the Nomination and Remuneration Committee must meet at least once in a financial year. For listed entities, SEBI LODR expects more frequent meetings aligned with the board calendar. The charter should set a clear cadence, and in practice the committee meets whenever grants, appointments or policy changes need recommendation.

    Comp committee na banane par penalty kya hai?

    Section 178(8) ke tahat agar company committee constitute nahi karti, to company par Rs 5 lakh aur har officer in default par Rs 1 lakh ka penalty lagta hai. Isliye applicable companies ko committee time par banani chahiye.

    What is the difference between this and ESOP scheme administration?

    Scheme administration is the operational work of running an ESOP: grants, the SH-6 register, exercise and cap-table updates. Governance is the board layer above it: constituting the committee, drafting the charter and policy, and mapping decision rights. This service builds that governance framework, which then directs how the operational administration is carried out.

    Quick Answers

    • Which section? Section 178, Companies Act 2013.
    • Committee? Nomination and Remuneration Committee.
    • Composition? 3+ non-executive, half independent.
    • Private company? Not mandatory, often voluntary.
    • Penalty? Rs 5 lakh company, Rs 1 lakh officer.

    Why Timing Matters

    Governance gaps surface fastest in due diligence, when an investor asks who approved a grant and there is no committee or policy to point to. Constitute the committee and write the policy before the round, not during it, so equity decisions already carry a clean board trail.

    Build Your ESOP Governance Framework

    ESOP governance is what turns equity from an informal founder decision into a board-owned, defensible process.

    Patron Accounting LLP, a CA and CS firm with 15+ years of governance experience, constitutes your Section 178 committee, drafts the charter and ESOP policy, and maps decision rights, so your equity decisions are made and recorded the way investors and regulators expect.

    Book a Free Consultation - No Obligation.

    ESOP Governance Advisory Across India

    In-person and remote committee constitution, charter drafting, ESOP policy and decision-rights mapping for boards.

    We advise boards and growth companies nationwide, with offices in Pune, Mumbai, Delhi and Gurugram and remote support across India. The committee constitution, charter, ESOP policy and decision-rights mapping is handled the same way wherever you are based.

    Content Created: 2 June 2026  |  Last Updated:  |  Next Review: 2 December 2026  |  Reviewed By: CA & CS Team, Patron Accounting LLP

    This page is reviewed every six months for amendments to Section 178 or the Board Powers Rules, SEBI LODR Regulation 19 changes, committee-composition or independence-norm updates, penalty revisions, and new governance guidance from MCA or SEBI (Tier 2 freshness).