The proxy advisory firm also recommended companies set caps on executive remuneration, and limit the range of the board’s powers to decide compensation
In India, pay packages for executive directors needs shareholders’ approval. But till now, managements have pushed shareholders to vote on executive director compensation with resolutions that are ambiguous, and effectively provide the board with a large amount of discretionary powers. Institutional Investor Advisory Services India Ltd (IiAS), citing three resolutions related with executive compensation that were defeated by shareholders of Tata Motors Ltd, said there is need to have greater clarity on such resolutions.
"Companies must wake-up to the message being sent by shareholders. These resolutions are built upon the practical understanding of investor psych: they are unlikely to vote against a resolution unless there is a material performance dip. Most compensation resolutions are merged with (re)appointment resolutions, adding to the decision-making dilemma, and creating a greater challenge for investors wanting to veto the resolution. A more proactive approach and independent oversight from the board/ management will go a long way in addressing this concern raised by shareholders," the proxy advisory firm said in a statement.
According to IiAS, on Thursday, three resolutions relating to executive compensation presented by Tata Motors were defeated, where 53% of the non-promoter shareholders participated in the voting. Remuneration resolutions need to be passed by a 75% majority – in these three cases, almost 30% of the votes were cast AGAINST, it said.
The recent amendments to Clause 49 of the Listing Agreement and the Companies Act 2013 break the compensation conundrum by enforcing disclosures that provide greater clarity on executive directors’ compensation. In addition to these, IiAS said it recommends companies set caps on executive remuneration, and limit the range of the board’s powers to decide compensation. Shareholders need clarity on what they are being asked to vote on.
The proxy advisory firm said, the ambiguity of compensation resolutions could have material implications. While reviewing the pay practices of the BSE S&P Sensex and Nifty 50 companies (excluding public sector units), IiAS said it observed certain anomalies, like, the fixed pay is often ambiguous. This component comprises the basic salary along with perquisites and allowances (including accommodation, insurance, club memberships, leave en-cashment, conveyance, telephone etc). Companies do specify a standard set of perquisites that executive directors are eligible for, yet these are rarely quantified. The lack of an overall cap leaves shareholders guessing on what will be the actual compensation payout - the complete control over compensation and annual increments, for all intents and purposes, rests with the board. And sometimes, even a cap might not be enough to provide clarity. If the upper cap is very high, the basic salary can range within a very broad band.
While analysing such resolutions, IiAS assumes the last paid salary as the minimum. Companies must also provide clarity on the fixed pay because with lack of adequate disclosures, the other components i.e perquisites, allowances and retirement benefits, which flow from this number, become open-ended, it added.
Talking about short-term incentives like commission, IiAS said, in 40% of the Nifty 50 companies, the commission is either specified as a percentage of net profits or is left to the discretion of the board. "The idea of linking commission to profits is sensible. However, in large companies, where profits are more than a threshold (say Rs40-50 billion), companies must be far more specific about the commission payout, given that even a nominal percentage of the net profits can result in a very high payout range. If left to the discretion of the board, companies need to formulate and disclose the performance benchmarks which are used to arrive at the commission payable, and also set a reasonable cap on the maximum amount that will be paid," it added.
Employee stock options (ESOPs)
ESOPs are a long-term incentive tool used by companies to attract, retain and motivate employees. Given its inherent linkage with performance, most companies tend to grant large number of ESOPs to its employees, including executive directors. However, only one out of the Nifty 50 companies (who have ESOP schemes) actually spelt out the maximum number of ESOPs its director will be entitled to. In all other cases, it was left to the board. It can be argued that companies have to make annual disclosures on the number of ESOPs granted to its directors in that year. But that’s a post facto argument. Shareholders have the right to get some clarity on the number of
ESOPs that are likely to be granted to directors before their approval is sought.
"For example," IiAS said, "YC Deveshwar, Chairman of ITC, was granted 270,000 ESOPs in FY13 at an exercise price of Rs2,494. Considering that these options were valued at Rs647.92 each, his total compensation through stock options amounted to Rs175 million in FY13. This is significantly higher than his remuneration of Rs99.3 million disclosed to shareholders."
Not all companies pay excessive salaries. For example, Infosys, Sun Pharma and the Tata Group ensure that their executives are paid in line with the industry average. However, even their remuneration policies are designed in a discretionary fashion and are open ended.
Till now, most institutional investors have not openly voiced their view on this. However, they are slowly starting to question the high payouts. Not surprisingly, the regulators have started pushing for greater scrutiny of executive compensation in listed companies.
IiAS said it believes the new disclosure requirements can act as self-regulatory tools and may induce companies to be more considered in their compensation decisions. Moreover, the consistency in disclosures will create comparability, thereby fostering an environment of competitive behaviour that will serve shareholders’ interest and the corporate governance agenda.
Many educational trusts are merely a tax-dodging scams, leading to a decline in the quality of Indian education. Its time to review the tax benefits to these many profit making trusts
Two-thirds of the world is said to be covered by water. The rest, it may have been observed, is now teeming with Indian students – from students pursuing higher studies but graduates and high school students, along with those going for vocational and professional courses. Are they the fodder for tax-dodging “charities”, leading to a serious decline in education?
I am a product of what was known all over the world as one the best maritime training institution in the world - the Training Ship Rajendra (previously Dufferin) and the Directorate of Maritime Engineering. My contemporaries now head similar training establishments in countries as diverse as the US, Canada, Australia, Malaysia and Persian Gulf, and there is no part of the world where the maritime administration will not have a few Indians. But here in India, maritime training has now been brought down to such an extent that graduates are unable get placements. Just a few decades ago, we had dozens of shipping companies chasing each one of us.
Meanwhile in India, there are over a hundred maritime training institutes now, each one of them run by a "educational trust" and therefore also enjoys tax-free status or other benefits. Even then, the maritime education has largely run aground. So what went wrong with education in India? Many things, sure, but one of them was this whole tax-exempted game of "trusts".
One of the many examples, a bit more flagrant because its is named after the governor of India, is the DY Patil "group" of educational institutions, sports stadia, other stuff and of course, trusts. If you've lived or studied in Maharashtra, you can't be unaware of the venerable DY Patil group, “Padmashree” and more.
It seems that somewhere down the line, they forgot to get their Trust registered. But that did not stop them from moving ahead with their core agenda -- massive physical expansion. The Income Tax department had different ideas. Some is what the IT department found out about the educational trusts of “DY Patil Padmashree”
"The appellant-Trust for a longer period of 20 years or so remained under bona fide impression that it was duly registered u/s 12A(a) of the Act."
"According to the Commissioner of Income-tax, right from the date of inception, the Trust did not file any return of income and the returns were filed for the first time after issue of notice under section 148/153C of the Act. The main plea of the assessee before the Commissioner of Income-tax was that since the Trust has been granted 80G certificate bearing No 165/D- 88/0f 89-90 dated 09.06.1989 in response to application dated 23.4.1989 from 1.11.1988 to 31.3.1992, the Trust must have been registered by the Commissioner of Income-tax."
"The Commissioner of Income-tax further rejected assessee's request for condonation of delay observing that he was not satisfied with the reason that registration was already allowed and since the papers are lost, the delay should be condoned. Further, it was observed by the Commissioner of Income-tax that assessee has not maintained books of account in the normal course of business of the Trust and has not been getting its account books audited which was mandatory. In the absence of any return of income having been filed by the assessee, the Commissioner of Income-tax held that the assessee has deliberately prevented the Department from visiting its activities and, therefore, the assessee did not deserve condonation of delay."
"it was pointed out that the Commissioner has referred to the report of the Assessing Officer specifically in paras 12.2 to 12.3 wherein it is observed that income earned by the Society is totally on commercial lines and the society is not being run for charitable purposes."
"On the basis of the seized/impounded documents during the course of search/survey and the enquiries conducted later on it was concluded by CIT, Central, Pune vide order dated 30-11-2007 that the activities of the trust are neither genuine nor are being carried out in accordance with the objects of the trust. "
More details of the case can be found here
Mark the Commissioner’s words: “The activities of the trust and neither genuine nor being carried out in accordance with the objects of the trust.” There is no dearth of similar information on a large number of other educational institutions. Large amounts of cash move around as capitation and other fees.
There is no reason to continue with this business of "tax-free trusts" instead of straight-forward corporate methods in education. As has been tried out in other countries, education can run on legitimate corporate basis, subsidies can go directly to the students or their parents. Or it is the State that runs education as a social measure.
In India, perpetrators of such tax-evasion are not only getting away with it but are bagging gubernatorial posts.
In this way, education has been systematically destroyed in India. Rich families are sending even junior and secondary school students to study abroad, because costs as well as quality of education are seen to be better. The latest one hears is that one of African countries, with a recently reviving economy, is putting up a large number of high-school-cum colleges and has been seeking teachers as well as support staff from India. To their surprise, while they received enough applications for staff who were to be provided board and lodging as well as decent salaries with high savings potential, they also started receiving serious enquiries from parents of students. Why, flourishing healthcare chains are now opening medical colleges to train future Indian doctors abroad – and that too in Cayman Islands! Please see this:
http://www.healthcitycaymanislands.com/ which acknowledges the role of Dr Devi Shetty of Bengaluru.
(Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved in helping small and midsize family-run businesses re-invent themselves.)
As india's population density increases, there is a need to create smaller administration units for better development only after taking consent of the citizens of the respective states
The first States Re-organising Committee (SRC) divided India into 14 states and 6 union territories. Historically smaller states like Goa, Punjab and Haryana have recorded higher and faster economic growth, as smaller states are easier to manage and administer.
Hence, the following larger states may be divided into smaller ones after taking consent of the citizens of the respective states and not the way Andhra Pradesh has been divided recently, giving rise to animosity and wide spread public chaos. This must be followed by efforts to make sure that inter-state trade and commerce should not suffer and there should be free movement of goods between states, which obviously requires the abolition of Central Sales Tax and a uniformity of rates of Value Added Tax across all states.
• The state of Uttar Pradesh (UP) be divided in to Paschim UP (capital at Ghaziabad), Kendriya Uttar Pradesh (Capital at Lucknow) and Purvanchal (capital at Gorakhpur or Varanasi)
• Maharashtra be divided in to Western Maharashtra (capital at Mumbai) and Eastern Maharashtra/ Vidarbha (capital at Nagpur)
• Rajasthan into Paschim Rajasthan (capital at Jodhpur) and Purvi Rajasthan (capital at Jaipur).
• Tamil Nadu be divided in to South Tamil Nadu (capital at Madurai) and North Tamil Nadu (capital at Chennai)
• Karnataka into North Karnataka (capital at Bijapur or a new city) and South Karnataka (capital at Bangalore)
• West Bengal in to south Bengal (capital Kolkata ) and north Bengal consisting of Darjeeling, Jalpaiguri, Cooch Bihar, South and North Dinajpur with capital at Jalpaiguri .
• For resolving the Gorkhaland impasse, there could be no harm in creating a separate Gorkhaland, otherwise the district of Darjeeling can be declared as a Union Territory. It is certainly not in the national interest to antagonise the Gorkhas who have made supreme sacrifices for the country.
A new state called Indraprastha:
Delhi has grown enormously, both in size and population. It may be expanded by including parts of adjoining districts, namely Alwar, Gurgaon, Rewari, Sonipat, Faridabad, Ghaziabad, Mathura and Gautama Buddha Nagar. This state can be called Indraprastha with Delhi as its capital city, with police under the state govt excluding an area of 4 Km radius around Parliament House to be policed by the Central Government with the Central Reserve Police Force. If this model is accepted, the concept and provision of national capital region (NCR) will automatically become redundant.
Chandigarh has witnessed a huge expansion in the last two decades and can be considered for statehood with inclusion of Mohali and Panchkula after taking public opinion and can continue to be the capital of Punjab and Haryana. However, it is better if Punjab shifts its capital to jalandhar (centre of Punjab state) and Haryana shifts it’s capital to Karnal or Jind, or else both states can start building new capital cities right in the centre of the states on the lines of Naya Raipur being built as the new capital of Chhattisgarh.
Capital cities of big states, while retaining this status, could come under the direct administration of central government for speedy development, beautification and better administration. There can be a debate on this issue in parliament followed by formal referendum and if people favour this change, let it so happen.
There is neither any justification nor any requirement of tiny union territories like Dadar and Nagar Haveli, Daman and Diu. The former should be merged with Maharashtra and latter with Gujarat.
A small piece of land named Yanon based in Andhra Pradesh (10 sq meter area near Godavari basin), which is under the jurisdiction of the distant Puducherry should be merged with Seemandhra.
The new and appropriate name of union territories should be central govt managed Areas (CGMA).
Rationalisation of laws:
There is no logic or reason to continue with more than 50 different central Acts on reorganisation of states particularly as many of such acts are now absolutely redundant and moreover the basic objectives of such acts have already been achieved and there are no pending issues, disputes or claims.
And hence only one consolidated Act called “Indian States Re-organisation Act” should be enacted for repeal of the following different acts on this subject, after providing for necessary safeguards and provisions for older Acts in the new act:
1. Absorbed Areas (Laws ) Act 1954
2. Acquired Territories ( Merger) Act 1960
3. Andhra Pradesh and Madras ( Alteration and boundaries) Act 1959
4. Andhra Pradesh and Mysore ( Transfer of territory) Act 1968
5. Anti-Apartheid ( United Nations Convention) Act 1968
6. Assam ( Alteration of boundaries) Act 1951
7. Assam municipal ( Manipur Amendment) Act 1961
8. Assam Reorganisation ( Meghalaya) Act 1969
9. Bihar Reorganisation Act, 2000
10. Bihar and Uttar Pradesh ( Alteration of Boundaries) Act
11. Bihar and West Bengal ( Transfer of territories) Act
12. Bikrama Singh’ Estate Act 1883
13. Bombay Reorganisation Act 1960
14. Boundaries Act 1847
15. Boundary-marks, Bombay 1846
16. Broach and Kaira Encumbered Estates Act 1877
17. Capital of Punjab Development and Regulation ( Chandigarh Amendment) Act 1973
18. Chota Nagpur Encumbered Estates Act 1876
19. Civil defence Act 1888
20. Cooch-Behar (Assimilation of Laws) Act 1950
21. Dadra and Nagar Haveli Act 1961
22. Dehra Dun 1871
23. Delhi and Ajmer-Merwara Land development Act 1948
24. Goa, Daman and Diu Reorganisation Act 1987
25. Haryana and U.P (Alteration of Boundaries) Act
26. Himachal Pradesh and Bilaspur (New State ) Act 1954
27. Junagarh Administration (Property) Act 1948
28. King of Oudh Estate act 1887
29. King of Oudh’s Estate Act 1888
30. King of Oudh’s Estate Validation Act 1917
31. Lushai Hills District ( Change of Names) Act 1954
(This district has already been converted into state of Meghalaya)
32. Madhya Pradesh Reorganisation Act 2000
33. Merged States ( Laws) Act 1949
34. Murshidad Act 1891
35. Murshidad Estate Administration Act 1933
36. Nagahills-Tuensang Area Act
37. North- Eastern Area ( Reorganisation) Act 1971
38. Oudh Estate Act 1869
39. Oudh Sub-settlement act 1866
40. Oudh Taluqdars Relief Act 1870
41. Oudhs Wasikas Act 1886
42. Partition of revenue paying estates 1863
43. Porahat Estate Act 1893
44. Kohima and Mokokchung Districts) Act 1988
45. Raipur and Khattra Laws Act 1879
46. Rajasthan and Madhya Pradesh Act 1959
47. State of Arunachal Pradesh Act 1986
48. State of Himachal Pradesh Act 1970
49. State of Mizoram Act 1986
50. State of Nagaland Act
51. Uttar Pradesh Reorganisation Act 2000
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