Bajaj Auto, Bosch and Maruti Suzuki shied away from disclosing pay ratios of directors
Almost 70% of the top-10 highest paid directors of Nifty companies are individual promoters while average remuneration of an executive director of a company listed in the benchmark index comes to Rs9 crore per annum, reveals an analysis from Bengaluru-based InGovern Research Services Pvt Ltd.
According to the analysis
, 34 out of the 50 companies in Nifty index have disclosed pay ratios of directors. While public sector units (PSUs) are exempt from pay-ratio disclosure norms, three companies, Bajaj Auto Ltd, Bosch Ltd and Maruti Suzuki India Ltd shied away from making any such disclosures, InGovern said. HCL Technologies, ACC and Ambuja Cements have not yet made their FY-2015 annual reports available as they have different year-ending dates.
The highest remuneration to a director was to Pawan Munjal, managing director of Hero MotoCorp, who was paid Rs43.91 crore for FY15. Ten directors were paid remuneration in excess of Rs19 crore. This included Kumar Mangalam Birla, the non-executive director of Ultratech Cement, who is also the chairman of the Board of the company. "Seven out of these 10 (i.e. 70%) directors are promoters of their respective companies. The three highest paid directors, Pawan Munjal, Brijmohan Lall Munjal and Sunil Kant Munjal, are directors of Hero MotoCorp. Lupin also contributed two directors, Desh Bandhu Gupta and Vinita Gupta, to the top-10 list," InGovern says.
The report says, eight directors were paid more than 1% of the standalone net profits with the highest being 2.33%. Remuneration paid to 11 directors exceeds 400 times the median employee pay of their companies. This includes three directors each of Hero MotoCorp and Lupin. The average median employee remuneration is about Rs5.87 lakh.
As per the report, Kumar Mangalam Birla, Chairman of Aditya Birla Group, is the only non-executive director among the top 10 highest paid directors. Mr Birla is non-executive director of four companies on Nifty and was paid Rs40.5 crore in FY2015 from these companies, InGovern says.
On an average, remuneration of an executive director of a Nifty company constituted 62% as fixed pay and 38% as variable pay. A higher variable component of remuneration indicates that the remuneration policy is aligned with performance of the company. Remuneration of 16 directors was less than 0.05% of the net profits of their companies.
At present, 10 PSUs, Bank of Baroda, BHEL, Bharat Petroleum, Coal India, GAIL, NTPC, ONGC, Punjab National Bank, Power Grid Corp and State Bank of India in part of the 50-stock Nifty index.
InGovern says, "In our opinion, such an exemption should not have been given to PSUs. In the interest of good governance, and greater transparency, all companies should be treated equal and selective exemptions should not be given. The Government of India should view its role as a dominant shareholder and as a regulator as distinct and should not have differing regulations for entities where it is a dominant shareholder."
The Companies Act, 2013 empowers shareholders to vote on proposals for fixing of remuneration of directors. In spite of being provided with such an authority, shareholders of Indian companies have rarely taken a principled stand in cases where excessive remuneration was paid to the directors, until recently.
The recent cases of Tata Motors (where proposals of remuneration to executive directors was voted against) and Apollo Hospitals (where more than 46% voting institutional shareholders voted against the proposals for appointment and remuneration of the executive vice chairperson and managing directors) shows a changing trend where shareholders are actively analysing and voting on remuneration proposals.