Big investors reject executive compensation proposals

Institutional shareholders are increasingly fighting against proposals from boards of directors and company management calling for significant increases for senior executives in a context of timid revenue growth and wage cuts for employees.

The latest installment in the rising tide of shareholder activism is the cancellation of Eicher Motor Ltd’s proposal to grant a 10% raise to its managing director Siddhartha Lal amid the pandemic. Over the past two months, shareholders, including foreign institutions and mutual funds, have voted overwhelmingly against the compensation proposals of the chairmen of Hero MotoCorp Ltd, Bajaj Auto Ltd and Balkrishna Industries Ltd.

Since the start of the year, five of the 15 members of the BSE Auto index have requested shareholder approval for the compensation of their chairmen. With the exception of Tata Motors, which sought approval from former chief executive Guenter Butschek for about four months until June 30, institutional shareholders voted against all resolutions calling for higher numbering for presidents and managing directors of the four companies.

However, unlike Eicher’s case, the resolutions of compensation payable to the presidents of the two-wheeler companies, Hero MotoCorp and Bajaj Auto, and the tire maker, Balkrishna Industries, were ordinary resolutions, requiring a simple majority. A higher stake from the promoter allowed each of these resolutions to obtain shareholder approval despite opposition from minority shareholders.

For example, Hero MotoCorp, India’s largest two-wheeler manufacturer, sought shareholder approval to pay higher compensation to Chairman and CEO Pawan Munjal on August 4. Munjal, who won about ??87 crore in the year ended in March, is expected to get a 10% pay hike to around ??95 crore in the current fiscal year, which the proxy consultancy firm Institutional Investor Advisory Services India Ltd (IiAS) called “superior to its peers”. Almost 78% of large shareholders, including FIIs, mutual funds and insurance companies, which together own 55% of the company, voted against the resolution. The ordinary resolution was passed with the approval of 60% of all shareholders, thanks to the participation of 35% of the promoters.

Likewise, Pune-based Bajaj Auto wanted to provide Rahul Bajaj, who resigned as non-executive chairman to become chairman emeritus last year, with a furnished house, a car, medical benefits, and a payment of up to up to ??6 crores per year. However, more than half of institutional shareholders voted against the proposal. Nevertheless, the ordinary resolution was approved, as 92% of the shareholders voted in favor. The Bajaj family owns 53.7% of the company.

Emails requesting responses from Lal, Bajaj and Munjal went unanswered.

“Compensation remains a big issue, especially when viewed in the context of company performance. At a time when employees are receiving a smaller pay rise, or many of them are losing their jobs, it is a concern for shareholders when a chairman is receiving very high pay, ”said Amit Tandon, Founder and Managing Director of IiAS.

IiAS suggested that shareholders vote against the compensation proposals in each of these companies.

In a year ravaged by the pandemic, which has resulted in declining revenues and profitability for automakers, institutional shareholders are angered by the high indemnities drawn by the presidents of these companies.


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