The latest episode in the rising tide of shareholder activism is the striking down of Eicher Motor Ltd’s proposal to give 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 overwhelmingly voted against the remuneration proposals for the chairmen of Hero MotoCorp Ltd, Bajaj Auto Ltd, and Balkrishna Industries Ltd.
Year to date, five of the 15 members of the BSE Auto Index have sought shareholders’ approval for remuneration of their chairmen. Save for Tata Motors, which sought approval for former chief executive Guenter Butschek for about four months to 30 June, institutional shareholders have voted against all resolutions seeking higher numeration for chairmen and managing directors of the four companies.
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However, unlike Eicher’s case, resolutions of remuneration payable to chairmen at the two-wheeler firms, Hero MotoCorp and Bajaj Auto, and the tyre maker, Balkrishna Industries, were ordinary resolutions, requiring a simple majority. A higher promoter stake helped each of these resolutions win shareholders’ approval despite opposition from minority shareholders.
For instance, Hero MotoCorp, India’s largest two-wheeler maker, sought shareholders’ approval to pay higher remuneration to chairman and chief executive Pawan Munjal on 4 August. Munjal, who earned about ₹87 crore in the year ended March, stands to get a 10% increase in his remuneration to about ₹95 crore in the current fiscal year, which proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has called “higher than peers". Almost 78% of large shareholders, including FIIs, mutual funds, and insurance companies, who together own 55% of the company, voted against the resolution. The ordinary resolution sailed through with 60% approval from all shareholders, thanks to the promoters’ 35% stake.
Similarly, Pune-based Bajaj Auto wanted to provide Rahul Bajaj, who stepped down as non-executive chairman to become chairman emeritus last year, with a furnished house, a car, medical benefits, and payment up to ₹6 crore a year. However, more than half of the institutional shareholders voted against the proposal. Still, the ordinary resolution was approved, as 92% of the shareholders voted in favour. The Bajaj family owns 53.7% of the company.
Emails seeking responses from Lal, Bajaj and Munjal remained unanswered.
“Compensation remains a big issue, especially when seen in the context of the performance of the companies. At a time employees are getting a lower salary hike, or many of them are losing jobs, it is a concern for shareholders when a chairman gets a very high remuneration," said Amit Tandon, founder and managing director at IiAS.
IiAS has suggested shareholders vote against the remuneration proposals at each of these companies.
In a year ravaged by the pandemic, which led to a decline in revenue and profitability for automakers, institutional shareholders are peeved at the high compensation package drawn by the chairmen of these companies.
“The point to remember is that, say five years back, all these two-wheeler and component firms had higher revenue and profitability growth. Now, when growth and profitability remain under pressure, and all of them are faced with disruption brought in by EVs (electric vehicles), does it make a compelling reason to pay high salaries to the senior leadership," said the head of a large mutual fund on the condition of anonymity.
“Companies call in HR consulting firms, who look at industry peers, and suggest a number. So, it is a self-fulfilling upward cycle," said Tandon of IiAS. “You also need to remember that the HR firm will be called back next year only if the CEO is satisfied with the recommendations. To this extent, these consulting firms are incentivized to push up the compensation number."
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