Shareholders force auto cos to shelve pay hike proposal for top executives

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Institutional shareholders are currently battling a barrage of proposals from company boards and managements that seek substantial salary hikes for their top executives. These proposals for higher remuneration comes at a juncture, where revenue growth has not been up to the mark and employees, are being forced to take pay cuts.

In a year where the pandemic has ravaged the economy and led to a decline in income and profits of automobile companies, institutional shareholders are irked at the pay packages of the chairmen and managing directors which continue to remain high.

The latest instance of an upsurge in shareholder activism was seen in Eicher Motors when the proposal to hike MD Siddhartha Lal’s salary by 10% amid the pandemic was struck down. Over the past couple of months, remuneration proposals of major companies like Hero MotoCorp, Bajaj Auto and Balkrishna Industries have received a negative voting from shareholders, inclusive of mutual funds and foreign institutions.

Investors not keen on hiking salaries of top executives

As of today, five out of 15 companies in the BSE Auto Index have sent proposals to the shareholders seeking higher remuneration for their chairmen. Institutional shareholders of four out of five companies have voted against all resolutions that sought increased remuneration for chairmen and MDs. The only remuneration plan that was not rejected was of former Tata Motors CEO Guenter Butschek. Unlike Eicher Motors, the resolutions moved for the salaries of chairmen of Hero MotoCorp and Bajaj Auto and Balkrishna Industries were ordinary ones and required a simple majority. Due to a higher promoter stake, it was easy for these resolutions to win the approval of shareholders despite facing minority shareholders opposing it.

For example, Hero MotoCorp on August 4 had sought the approval of the shareholders for hiking the remuneration of chairman and CEO Pawan Munjal by 10%, from Rs 87 crore per annum to around Rs 95 crore.

The resolution was voted against by almost 78% of large shareholders like FIIs, MFs and insurance companies, which collectively own 55% of the company. Owing to the promoter’s stake of 35%, the ordinary resolution passed with 60% from all shareholders.

Bajaj Auto wanted to provide chairman emeritus Rahul Bajaj, with medical benefits, a car, a furnished house along with payment of up to Rs 6 crore per year. This was rejected by more than half of the institutional shareholders. However, it was still passed as 92% of the shareholders voted in its favour. The Bajaj family owns 53.7% of Bajaj Auto.