Shareholders reject Tata Motors pay plan

Higher payment to 3 directors turned down; talent retention also key, says firm

In a rare case of investor activism on managerial remuneration, shareholders of Tata Motors, India's biggest automotive maker, rejected compensation payment in excess of prescribed limits to three directors.

The company did not get the required 75 per cent votes in a postal ballot to compensate Executive Director (commercial vehicles) Ravindra Pisharody, Executive Director (quality) Satish Borwankar and the legal heir of former managing director Karl Slym (who died in January) in excess of the limits for the year ended March.

The law mandates shareholder approval if the total amount to be paid by a company to its whole-time directors exceeds five per cent of its net income. Tata Motors had to seek stakeholders' approval for the remuneration because of "inadequacy of profits".

Nearly 30 per cent of the votes were cast against the resolution. A little more than 64 per cent of the financial institutions, which hold a 37 per cent stake in the company, voted against the resolution.

Proxy advisory firm Stakeholders Empowerment Services (SES) had said in its note to stakeholders: "The minimum remuneration includes performance-based incentives, in addition to basic salary, benefits, perquisites and allowances, without setting maximum limit on them." Shareholders should note the remuneration paid to the directors for 2013-14 included bonuses/commissions. In view of the company's weak performance during the year, the directors/executives of the company should not receive any profit/performance-based incentives, it had added.

The Mumbai-based automobile firm posted a standalone loss of Rs 817 crore in the quarter ended March. Its loss widened 161 per cent from Rs 312 crore in the same quarter last year.

In case of no profits or inadequacy of profits, a company could pay remuneration of up to the ceiling limits as specified in Schedule XIII (Rs 48 lakh according to the slab applicable to Tata Motors). Any excess is subject to members' approval by way of special resolution and compliance of disclosure requirements, SES explained in a release.

The markets welcomed the rejection; the company's shares rose 3.03 per cent from previous close on BSE to Rs 468.80 apiece.

For Pisharody and Borwankar, the firm had proposed a salary of up to Rs 7 lakh a month, besides incentives, benefits, perquisites and allowances. Pisharody's total annual payout totalled Rs 3.75 crore as of last year, while Borwankar's stood at Rs 2.98 crore. Slym's total pay stood at Rs 12.84 crore.

Large institutions like Life Insurance Corporation of India (LIC) are said to have voted against the proportion, while a few other insurance companies did not participate in voting. A senior insurance executive close to the development said they voted against the proposal as the automaker was incurring losses. "The fourth-quarter losses were more than double those in the same quarter last year. So, it was imperative that the immediate focus should be growth," said an insurance executive.

"This is the first time that shareholders have rejected a resolution on pay raise, but this will not be the last one. It is a clear reflection of shareholder activism in a firm not doing well, and it has been led by institutional investors," said Amit Tandon, founder & managing director, Institutional Investor Advisory Services, a proxy advisory firm.

In response to an emailed query, a spokesperson for Tata Motors said the proposals were consistent with market benchmarks and based on a series of metrics related to the company's overall performance and health, and aggressive implementation of strategies for future growth. On inadequacy of profits, the spokesperson said it was because of an unprecedented and prolonged economic slowdown in the country's economy, weak consumer sentiment, and subdued infrastructure activity.

Tata Motors said while it remained committed to pursuing the long-term interests of all stakeholders, it was necessary to balance this with recruiting and retaining an industry-proven management team through the long term. "This involves ensuring the company's leadership and talent base is appropriately remunerated, notwithstanding cyclical phases. This is particularly important when the company has ongoing significant turnaround and growth strategies under execution," it said in a statement, adding it was considering its options.

The shareholders, however, approved through postal ballot increasing the firm's borrowing limit, creation of charges on the company's properties and offer for subscription on non-convertible debentures on a private placement basis.

Two years ago, shareholders of Jindal Steel and Power were advised to reject a revision in remuneration of all whole-time directors and restrain Naveen Jindal, one of India's best-paid executives, from having the power to decide his own salary. Earlier this year, a similar discontent was seen at debt-laden Suzlon Energy, where Managing Director Tulsi Tanti's salary was proposed to be raised by 50 per cent. But both these proposals sailed through, as shareholders voted in favour of the resolutions.