Investors Fighting Auto Boards For A Raise For Top Executives

The latest episode 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.

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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 enabled each of these resolutions to obtain shareholder approval despite opposition from minority shareholders.

For example, Hero MotoCorp, India’s largest two-wheeler manufacturer, has 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) has described as “superior to its peers”. Almost 78% of major 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 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. Nonetheless, the ordinary resolution was approved, as 92% of 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 compensation plan established by the presidents of these companies.

“The bottom line is that, say five years ago, all of these two-wheeler and component companies had higher revenue growth and higher profitability. Now, as growth and profitability remain under pressure and all face the disruption brought by electric vehicles (electric vehicles), is this a compelling reason to pay high salaries to senior management? said the head of a large mutual fund on condition of anonymity.

“Companies use HR consulting firms, who review their industry peers and suggest a number. So this is a self-fulfilling ascending cycle, ”said Tandon of IIAS. “You should also remember that the HR firm will only be recalled next year if the CEO is satisfied with the recommendations. To that extent, these consulting firms are encouraged to increase the number of compensations. “