Tata Motors: Shareholders Reject Directors Remuneration

Tata Motors Limited notified to the stock exchanges on May 27, 2014, of their decision to seek approval for six resolutions through a postal ballot. The last date of submission of votes was June 27, 2014. The resolutions were:

  1. Approval for payment of minimum remuneration to Mr Ravindra Pisharody, Executive Director (Commercial Vehicles) in case of inadequacy of profits and ratification of the excess remuneration of Rs. 3.20 crore paid for the financial year ended March 31, 2014
  2. Approval for payment of minimum remuneration to Mr Satish Borwankar, Executive Director (Quality) in case of inadequacy of profits and ratification of the excess remuneration of Rs. 2.44 crore paid for the financial year ended March 31, 2014
  3. Approval and ratification of the excess remuneration of Rs. 14.64 crore paid to (late) Mr Karl Slym, Managing Director/his legal heir in view of inadequacy of profits for the financial year ended March 31, 2014
  4. Extension of validity of the borrowing powers of the Board
  5. Creation of charge on Company’s properties
  6. To offer or invite for subscription of Non-Convertible Debentures on private placement basis

All these six resolutions were special resolutions which required approval of at least 75% of the votes by voting members.

As per the company, the first three resolutions relating to ratification of excess remuneration, aggregating Rs. 20.28 crore, of the executive directors (including the erstwhile MD) are due to the fact that the Company may have no/inadequate profits for FY14. The Resolutions 1 and 2 also seek approval for payment of a minimum remuneration to Mr. Borwankar and Mr. Pisharody, during FY15, FY16 and FY17 in case the company has no/inadequate profits. The minimum remuneration for both executive directors includes a salary of upto Rs. 7,00,000 per month, incentive (if any), benefits, perquisites and allowances.

Result of the postal ballot was disclosed on July 3, 2014. Resolutions 4, 5 and 6 were passed while Resolutions 1, 2 and 3 (regarding ratification of excess remuneration to executive directors and erstwhile MD) were not passed as they couldn’t receive requisite majority.

The voting result for Resolution 1, 2 and 3 are given in the table below:

Shareholder

Res 1

Res 2

Res 3

For (%)

Against (%)

For (%)

Against (%)

For (%)

Against (%)

Promoter

100.00

-

100.00

-

100.00

-

Public – Institutional

35.58

64.42

35.58

64.42

36.08

63.92

Public – Others

58.78

41.22

58.77

41.23

58.92

41.08

Grand Total

70.07

29.93

70.07

29.93

70.25

29.75

A total of 62,60,92,737 votes (Ordinary & DVR shares), which comprised 46.48% of the total institutional shareholder votes, were polled by the institutional shareholders.

As evident from the voting results, the institutional investors have decisively voted against the ratification of excess remuneration (aggregating Rs. 20.28 crore) to the executive directors.

InGovern, as a proponent of adoption of best global corporate governance practices by Indian companies, believes executive directors and MD are tasked with setting the company’s long-term and short-term strategy and are responsible for the company’s operational performance. Hence their remuneration and incentives should ideally be aligned with the financial performance of the company. InGovern is against increase in remuneration in case of decline in financial performance or payment of excessive remuneration to directors of perennially underperforming companies.

Other cases where shareholders had voted against increase in/payment of excess remuneration in proxy season 2011 are:

  • Seamec: Resolution number 5 – Remuneration to MD in absence of profits. Several shareholders raised dissent. After conferring with Directors, Chairman withdrew the proposal.
  • ARSS Infrastructure Projects: Chairman withdrew resolution number 8 to 10 calling for Enhancement of remuneration payable to Directors’ relatives holding office or place of profit.

Companies should recognize that minority investors are increasingly assertive on company matters and companies should, in the interest of good corporate governance, take the views of these investors into account when putting forth various proposals.

To download the pdf version, click on Tata Motors – Rejection of Directors Remuneration